And just… Let her cry…if the tears fall down like rain Let her sing…if it eases all her pain Let her go…let her walk right out on me And if the sun comes up tomorrow Let her be…let her be.
Don’t you want to be that flipper? Make a pile of money trading stucco boxes, and you too can swim naked with supermodels — or whatever it is you want.
Flippers Add Liquidity
The real value flippers add to a market is liquidity. The flippers who have been successful lately are those who buy at auction and sell for more in the resale market. Given the near certainty of a large amount of supply coming on the market, flipping is a risky proposition. The good flippers know this, and many have been pulling back.
When flippers become cautious, it reduces liquidity and lowers auction prices. Lenders must lower their bids significantly to avoid purchasing the property, and even then, there are times when no flipper can be enticed to buy.
The bank the purchased today’s featured property paid $525,147 on 7/7/2009. If it really is worth $200,000 more in the resale market, some flipper missed a great deal. This will entice them back into the game.
Flipping in a declining market is a game for the quick and the dead. It you get in and out quickly enough, you can profit from the trade. However, if you pay too much or get greedy and ask for too much — well, then you are a knife catcher.
Flippers add liquidity to the market through keeping home prices high as well. As I noted last week, when flippers drive up home prices, it provides higher appraised values for all properties, and in a kool-aid world, more HELOC money for every homeowner to spend. That is the liquidity every homeowner can appreciate.
Asking Price: $729,900
Income Requirement: $182,475 Downpayment Needed: $145,980
Beds: 4 Baths: 3 Sq. Ft.: 2,300 $/Sq. Ft.: $317 Lot Size: 3,877 Sq. Ft. Property Type: Single Family Residence Style: Contemporary Stories: 2 Year Built: 2005 Community: El Camino Real County: Orange MLS#: P701125 Source: SoCalMLS Status: Active On Redfin: 7 day
MOVE IN CONDITION – FRESH PAINT, NEW FLOORING. Gourmet kitchen with granite countertops, island counter, stainless steel appliances. Dual pane windows throughout. Large master bedroom with walk-in closet; master bath with double sinks, separate shower and jacuzzi tub. Fireplace in living room. Bonus loft. Laundry Room. Dual pane windows. Private courtyard. Must see!
Must see! Really? Why must I see it? Why do realtors say this? Are people really motivated to action by this statement in a description?
This one has been in the foreclosure pipeline since at least last July, depending on how long between the first missed payment and the notice of default. This must be at least 90 days, so the previous owner quit making payments at the latest in July of 2008. It is taking just over a year to process properties like this one.
Foreclosure Record Recording Date: 02/03/2009 Document Type: Notice of Sale (aka Notice of Trustee’s Sale) Document #: 2009000048159
Foreclosure Record Recording Date: 10/31/2008 Document Type: Notice of Default Document #: 2008000500578
The lender will not actually make $200,000 if they get this asking price as they are just trying to get their original loan amount back. Good luck with that.
Sunshine on my shoulders makes me happy Sunshine in my eyes can make me cry Sunshine on the water looks so lovely Sunshine almost always makes me high Sunshine On My Shoulders — John Denver
Sometimes, I see property records that look proper, but something is very wrong. I don’t know what happened, but we can all speculate on this one.
Today’s featured property was purchased on 3/2/2007 for $600,000. The owner used a $480,000 first mortgage and a $120,000 downpayment. For historical reference, March of 2007 was the month subprime imploded.
On 5/1/2008, Bank of America authorized a $300,000 HELOC on the property. WTF?
Did the owner pay down the first enough to have $300,000 in equity on 5/1/2008?
Did an appraisal come back at $780,000 after a year of property declines?
Unless the owner paid down the first mortgage a great deal, the $300,000 Bank of America loan was wiped out in foreclosure 12 months later. Yikes!
Foreclosure Record Recording Date: 04/22/2009 Document Type: Notice of Sale (aka Notice of Trustee’s Sale) Document #: 2009000196117
Foreclosure Record Recording Date: 01/12/2009 Document Type: Notice of Default Document #: 2009000009612
The borrower stopped paying the first mortgage by September of 2008 which was three months after the HELOC was opened. It doesn’t look like the HELOC money was needed to make payments. The quick timing of the default does look like a strange coincidence.
This property went to auction on 7/6/2009 for $351,158. That is 41.5% off the 3/2/2007 purchase price.
The recovery amount does not satisfy the first mortgage, and the $300,000 HELOC is gone. Perhaps Bank of America got lucky, and the owner did not max out the HELOC.
Bank Owned. Sold AS IS. A Beautiful Avalon Floor plan in the community
of Ridge Townehomes in Turtle Rock. Light and Bright 2 bedrooms in a
quiet and peaceful location. This home offers two bedrooms with a
vaulted ceiling family room that is open to a formal dining room. An
attached 2 car garage. Sunny patio off the family room with a marble
fireplace in family room. Close to award winning schools, and a five
minute drive to UCI.
I’m at peace, I’m the man Buying stocks on the day of the crash On the loose, I’m a truck All the rolling hills, I’ll flatten ’em out, yeah It’s herd behavior, uh huh It’s evolution, baby … This land is mine, this land is free … Admire me, admire my home … I crawled the earth, but now I’m higher 2010, watch it go to fire It’s evolution, baby Do the evolution Come on, come on, come on
Change is a constant in our society. The rules evolve, and our relationship to money and housing changes. When people bought houses in the late 90s, they either put 20% down, or they used an FHA financing program. Prices fell for 6 years, and the market was dominated by conventional mortgages; there were few alternatives available (much like today).
In such an environment, few were borrowing their home equity to sustain personal spending. The path to spending addiction through HELOC abuse can release the inner Darth Vader in any of us. This wasn’t a problem because lenders were not enabling it in the late 90s — then came The Great Housing Bubble.
Once lenders started loaning money to anyone and begging people to take it, those who might be tempted by the Dark Side found it increasingly difficult to resist — if they saw a reason to resist at all. Why not spend the money when real estate always goes up? Those who failed to recognize the trap willingly spent to their own destruction.
People do not wake up one day and decide to become addicted to HELOC money; it creeps up on them in a series of small borrowings for “necessities” they are entitled to. We have all seen the pattern of ever-increasing borrowing that crescendos with an Option ARM and ultimately a short sale or foreclosure.
In a series of small increments many people gradually and consistently increased their dependence on their home equity and spent it as fast as it accumulated. The best of people can be seduced by such a powerful Force and the desire to direct it.
Heroic characters like Anakin Skywalker succumb to their own vices and weaknesses with tragic results, but sometimes these stories end with success and absolution. These characters are not alone. Many who suffer from HELOC addiction can be reformed and their lives atoned. Stories of redemption will abound when this crisis has past.
Whether people overcome their HELOC addiction or not, everyone is going to have to learn to live without HELOC money for the foreseeable future, perhaps a decade. The trees didn’t grow to the sky. Will the toxin of kool aid addiction and HELOC abuse persist for that long? Or will the addiction simply resurface once the supply of easy money comes back?
A weary traveler was on a
quest to satisfy his deepest longings and desires. He traveled from
place to place, but no matter where he went or what he tried, nothing
would quite satisfy him. One day, exhausted from his search, he
happened to sit beneath a magical wish-fulfilling tree. He thought to
himself, “Perhaps it is not so good to desire so much. It has not
brought me any lasting satisfaction, but I am tired, and I could use
something to eat and drink…” No sooner had he thought this when
delicious food and drink appeared for him to enjoy. “Wow,” he
exclaimed, “this is fantastic, but it would be nice to have someone to
share this bounty with.” As soon as the thought occurred, a companion
appeared to enjoy the feast. His desires replete for the moment, he
thought to himself, “This is very strange. Everywhere I have traveled I
have wanted and found no satisfaction, and here at this tree, I can
have anything I desire. I wonder if there is something magic in this
tree? I wonder if it is inhabited by some spirit? I wonder if it is a
goblin that will consume me?” And, as soon he had this thought, a goblin
appeared, and consumed him.
HELOCs enabled people to satisfy
their hunger for vacations, consumer goods and the like and live well
beyond their means. This went on for an astonishingly long time. Many
of these people became accustomed to living off the extra “income”
coming from their houses. Like the goblin in the parable, the magic
wish-fulfilling house consumed them, and now they have lost their
house, their credit and themselves.
How long with the residue of this lifestyle continue to impact our prices? How many knife catchers are buying because they think the market has bottomed and the housing ATM will soon be dispensing $20 bills like toilet paper? Has cool aid intoxication become such a part of the culture that it has a measurable effect on fundamentals?
HELOC abuse was everywhere. There are the few Millionaire’s Next Door, but you are far more likely to find the HELOC Abuser Next Door than you are the millionaire.
Very nice 3 bedroom 2 1/2 bath on a cul de sac in the gated community
of Bella Rosa. Large center isle kitchen with granite
counters/backsplash, 18′ tile flooring,plantation shutters,breakfast
nook,partial w/w carpet, fireplace, ceramic tile in master
bath,separate tile shower stall,large walk in closet, mirrored
wardrobes, laundry room,built in BBQ and firepit,association resort-
like pool, spa, cabanas and state of the art gym.
If this property sells for its current asking price, the sales price will be 51% higher than the original sales price of $548,500 back on 5/27/2003. The original owner used a $438,750 first mortgage, and a $109,750 downpayment.
A few months later on 10/20/2003, he opened a HELOC for $100,000 to gain access to the downpayment.
Then there was a series of refinances (can I abbreviate the description, or should I detail every loan?)
On 2/20/2007 the final refinance was $860,000.
On 5/15/2007 the last HELOC was $115,000.
Total property debt is $975,000.
Total mortgage equity withdrawal is $536,250.
It must have been a great ride….
I no longer know how to feel about HELOC abuse when I see it. I am not angry anymore. I still feel a bit of awe and perhaps a sneaking sense of admiration for what they pulled off. I imagine how my life might have turned out differently if I made different choices. It would have been a great deal of fun while the money lasted.
I have no regrets about failing to game the system. We all want the money to spend, but is holding up a bank the best way to get it? How many Bonnie and Clydes did we create?
I hope people will come forward and tell their stories. I want to hear their Truths, and their rationalizations. HELOC abuse is a cultural phenomenon that defines the 00s.
When a problem gets this large, people of all walks of life and all manners of character get caught up in it. There will be interesting stories of good people who ruthlessly default and ordinary people whose financial lives are wildly enriched or utterly destroyed.
In the end, we need to deal with our emotions concerning HELOC abuse and the impact it had on our society. The financial fallout is painful but short lived, but for many the emotional repercussions will linger much longer.
So, how do you feel about HELOC abuse now?
{book4}
When I wrote this post, I came across Predictions for 2008 written on 1/1/2008. It was an interesting trip down memory lane. I have enabled comments on the old post if you want to add the perspective of history or tell someone from years ago how wrong they were….
Today, I want to tell you about a new blog I came across recently that may be of interest to those who really want to understand real estate markets: Deal Breaker.
I wrote Land Value 101 long ago to describe how raw land parcels are valued. I found Deal Breaker which is a blog devoted to documenting the details of raw land transactions around Southern California. If you want to see what is happening in this market, it will provide you insight into what the builders and developers are doing and where they see the housing market going. We are just entering a phase of cleaning up the mess; properties are going for a small fraction of their peak valuations.
{book4}
Here are a couple of properties that were taken off the market before I could profile them this week.
Here comes the sun, here comes the sun, and I say it’s all right
Little darling, it’s been a long cold lonely winter Little darling, it feels like years since it’s been here Here comes the sun, here comes the sun and I say it’s all right
Fantastic opportunity,Bowen court plan 3 detached condo with 2
bedrooms,2 1/2 baths,2 car side by side garage, nice sized patio,all
downstairs ceramic tile flooring and all upstairs hardwood
floorings,plantation shutters,just walking distances to Woodbury
shopping center and The commons and Woodbury elementary school.
Travertine entry begins your journey into a beautiful Bradford townhome with pride of ownership. Remodeled kitchen w/granite countertops,newer white appliances with travertine flooring. Scraped ceilings accent the recessed lighting. Remodeled guest bath.Masterbath has travertine countertop, master closet is walkin closet.Guest bath off kitchen with granite countertops. Central air and newer furnace with newer ducting. Steps to East Shore school. Driveway leads to 2 car garage with direct access. Backyard has cement patio. Traverinte fireplace.Owning a home in woodbridge gives you access to all pools,spas, tennis courts, volleyball courts and parks as well as the Beaches and Lagoons in North and South lake.
Not a bad description, although it overdoes the travertine (including one misspelling).
Back in February I profiled the holdings of the Emporer of Woodbridge in Everybody Wants to Own the World.
The owner of that empire traded today’s featured property. Back
on 7/25/2000, the Emporer bought this property for $243,000. He sold it
on 3/8/2007 for $575,000. While he owned it, he took out an Option ARM
for $357,000, probably to finance his ongoing operations.
The couple he sold the property to on 3/8/2007 have not done quite
so well. If they get their asking price, it will not be a short sale,
but their equity will be gone.
When one-bedroom condos start going for over $400,000, doesn’t that just feel wrong? Isn’t there an intuition that says, “this property is just not worth that much?”
One thing I like about Dr. Housing Bubble’s Real Homes of Genius is that you just knew something was wrong. When you look at a decrepit old shack selling for $500,000, something isn’t right.
Even at $275,000, this price for this property makes no sense. Twelve years ago, that was the median home price, and $274,000 would have bought you a nice house (15182 Marne Cir Irvine, CA 92604). Instead we enter the Never Never Land of the Great Housing Bubble, and condos like today’s featured property suddenly sell for more.
So where do we go from here? Many people are getting caught up in our current bear rally and are becoming convinced we are at the bottom. It isn’t very likely that we are at the bottom.
We are entering a strange place in our housing market where many properties trade at or below rental parity — outside of Irvine — and yet prices will likely fall further. Despite the continuing slow decline, there are opportunities to save money buying versus renting. For those who know they are going to stay in a property for ten years or more, they can ride out the remaining decline and still fare well financially because they are saving money each month over renting.
The lack of appreciation in the market distorts the buy versus rent decision just as rapid appreciation does. It creates this unique circumstance where long-term homeowners can still benefit financially even in the face of declining prices. In areas outside of Irvine, we have reached the point where selling and “going short” is probably not going to yield significant savings, particularly for those who will pay more in rent after the sale. In Irvine, our prices are still inflated enough that cashing in that bubble equity lottery ticket may still have value.
Resort Luxury Living In A Gorgeous Tropical Setting At The
Metropolitan. This Open And Spacious Condo Is Perfectly Located On The
First Floor With Easy Access To The Pool, Clubhouse, Fitness Center,
And Parking. The Metropolitan Has A Guard Gated Entry For Security And
Privacy. A Spacious One (1) Bedroom Condo With A Large Balcony
Surrounded By A Greenbelt And Lush Trees. You’ll Feel Like You’re On
Vacation At A Tropical Resort. Volume Ceilings, Crown Molding, Inside
Stacked Washer/Dryer, New Carpet, And Designer Paint Make This A Turn-Key Home. Highlights Include A Living Room, Den/Office/Dining
Room, Master Suite With Dual Sinks, Large Tub, Separate Shower, And A
Walk-In Closet. The Metropolitan Features A Resort Quality Pool, Spa,
Fitness Center, Clubhouse, And On-Site Property Management. Great
Location In The Center Of Irvine’s Financial District, With Easy Access
To John Wayne Airport, Freeways, South Coast Plaza, Fashion Island, And
The Beach.
Why Is Every Word Capitalized?
This is another 2003 rollback as the low end continues to drop.
I hope the Irvine Company will continue to communicate with us through the blog, the forums and periodic calls like the one on Monday. A medium like ours is more effective than a press release, and it is a way to speak directly to customers (us). We all benefit from having these lines of communication open.
And so concludes another week at the Irvine Housing Blog, chronicling the Irvine home market since September of 2006.