Category Archives: Short Sale

Rent or Own? Fall 2009

Everyone wants a comfortable family home; a safe place to share family
love and memories. The question becomes should you create this
environment in a home you rent? or a home you own?

life in Irvine, California

Irvine Home Address … 8 Blue Ridge Rd Irvine, CA 92620
Resale Home Price …… $675,000

{book1}

Such a feelins comin over me
There is wonder in most everything I see
Not a cloud in the sky
Got the sun in my eyes
And I wont be surprised if its a dream

Top of the World — The Carpenters

There is an excitement in the air. People believe the recession is over, there is not a cloud in the sky, and possibilities are endless. Now where is that HELOC money so we can get back to living?

The mainstream media is dominated by articles full of wishful thinking. The optimism is blinding people to the realities of the commercial real estate bust and the residential ARM resets yet to be written down. We still have two major deflationary events in front of us, and there is scarcely a mention of it in the MSM.

What is fueling optimism in the real estate market — other than residual kool-aid intoxication — is a host of government market props. These include (1) an $8,000 tax credit to qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009, (2) the Federal Reserve buying agency debt so the GSEs and the FHA can continue to underwrite loans no investors want in order to hold down mortgage interest rates, and (3) withholding of product inventory to create artificial shortages.

Buy? or Rent?

Buyers believe the government props will sustain the market long enough for free-market conditions to support current price levels. In short, buyers believe we are at the bottom. Renters believe the local market will fall off a cliff once the government market props have been removed. Who is right? Is the market “on ice” like buyers believe? or is it “on fire” like the renters believe?

Irvine Fire and Ice Scenarios

The Federal Reserve’s Dilemma

The Federal Reserve is not charged with re-inflating the housing bubble and returning our economy to HELOC borrowing for personal consumption. As Barney Frank put it, “It (expanding FHA) was
an effort to keep prices from falling too fast. That’s a policy.” Do you understand the implication of his official policy statement? The US Government — and the FED — are charged with making sure prices do not fall too fast. Once prices stop falling in an uncontrolled death spiral, the props will be removed.

The FED does not want to be a market prop, but they do not feel like they have much choice in the matter. Each market that crashes deflated hundreds of billions of dollars of lender collateral, or as is more common now, lender property. Lenders would love to maintain the illusion of high prices in Coastal California.

Once prices start to fall sharply, cure rates fall off and people walk away from their properties. This tipping point is reached when the downward spiral takes over; foreclosures lower prices which creates more foreclosures. The lenders are desperate to prevent this.

The Federal Reserve is under pressure to wind down special programs and market supports and return the economy to a regulated free market (do you like that oxymoron?) If the Federal Reserve keeps these programs in props in place, it will be very inflationary, and it may even result in a big inflation spike in 2011. Eventually, the market props will need to be phased out.

With the Federal Reserve trying to balance its competing priorities, sustained appreciation in the real estate market is not very likely, particularly in markets like ours where the downward spiral has not crushed prices yet. The FED will attempt to hold mortgage interest rates low by buying agency paper until such time they don’t need to. They will do this until inflation forces their hand and makes them stop. If they are able to succeed, they may be able to flatten the market and ease interest rates back up while the market fundamentals catch up.

The Lost Decade

The chart above shows median home prices in Irvine stabilizing at
$450,000 in 2010 as interest rates bottom at 4.5%. The average interest rate since the early 1970s when the GSEs
started keeping records is 8% (7.99% actually). I further assumed
interest rates will rise once this economic crisis is over from an
unprecedented 4.5% to the long term average of 8%.

None of us knows what will happen next. The best we can do is take an objective look at the information and try to make a good decision. Right now, in the fall of 2009, the circumstances favor renting unless you are buying with a 7-10 year timeframe. There is too much potential downside risk and very limited upside potential. If you are buying today in Irvine because you expect appreciation, you will be disappointed in the short and medium term. In the long term, we are all dead.

life in Irvine, California

Irvine Home Address … 8 Blue Ridge Rd Irvine, CA 92620

Resale Home Price … $675,000

Income Requirement ……. $124,236
Downpayment Needed … $135,000

Home Purchase Price … $865,000
Home Purchase Date …. 7/18/2007

Net Gain (Loss) ………. $(230,500)
Percent Change ………. -22.0%
Annual Appreciation … -7.9%

Monthly Mortgage Payment … $2,899
Monthly Cash Outlays ………… $3,780
Monthly Cost of Ownership … $2,830

Redfin Property Details for 8 Blue Ridge Rd Irvine, CA 92620

Beds: 4
Baths: 2.5
Sq. Ft.: 2,509
$/Sq. Ft.: $269
Lot Size: 5,998 Sq. Ft.
Property Type: Detached, Single Family Residence
Stories: 2
Year Built: 1979
Community: Northwood
County: Orange
MLS#: K09059907
Source: MRMLS
Status: Active
On Redfin: 137 days

Irvine home built in 1979 4 Bedroom 2 1/2 Bathroom boasting 2,495 sq ft in Living Space.

{book2}

Check out this listing price history:

Date Event Price
Oct 14, 2009 Price Changed $675,000
Oct 13, 2009 Price Changed $600,000
Oct 13, 2009 Relisted —
Jun 04, 2009 Delisted —
Jun 01, 2009 Listed $550,000

This is an unforeclosed short sale from what I can tell in the property records. Either the lender is getting greedy to recover more of its lost loan money or this seller is delusional. It could be a bit of both.

This property was purchased on 7/18/2007 for $865,000. The owners used a $778,500 first mortgage and a $86,500 downpayment. It didn’t take them long to give up on the property.

Foreclosure Record
Recording Date: 12/15/2008
Document Type: Notice of Sale (aka Notice of Trustee’s Sale)
Document #: 2008000573928

Foreclosure Record
Recording Date: 08/20/2008
Document Type: Notice of Default
Document #: 2008000396611

There must be more to this story. A couple who put in a significant downpayment gave up paying about a year after move in? I doubt they felt they were so far underwater it was hopeless. This may be a job loss or other family issue.

I assume the people must still live there and they are handling this as a short sale. If so, they haven’t made a payment to anyone for their housing for the last year. Free housing during the Great Recession is this family’s compensation for losing their home.

More HELOC Abuse?

Did you notice that every property this week had HELOC abuse? Today is yet another long-term homeowner who spent it all.

Irvine Home Address … 14952 N Gainford Cir Irvine, CA 92604
Resale Home Price …… $420,000

Late at night Im takin you home
I say I wanna stay, you say you wanna be alone
You say you dont love me, girl you cant hide your desire
`cause when we kiss, fire

Fire — Bruce Springsteen

Something restarted a fire in me; HELOC abuse is starting to make me angry again. (BTW, we have added Housing Bubble News to our sidebar.) Perhaps it was a full week of HELOC abuse posts. I didn’t seek them out; HELOC former HELOC abusers represent many of the houses for sale right now, particularly at lower prices.

Day after day of $250,000 or more of mortgage equity withdrawal and you become numb to the whole idea. Have you ever stopped to ponder how much spending $250,000 of extra disposable income really is? It pays off the typical American’s credit card debt more than 12 times over. It is probably more take home pay than many of these people had during the same period.credit card user debt

Our cartoon debtor in red is staring at $18,654, which is a typical families debt load. Many people will burn through a pile like that in just a few years and spend forever paying it back — or seek out ways to avoid paying it back at all.

Then lenders Innovated and found ways to liberate people’s equity. The HELOCs — which often represented all real and imagined accumulated equity — became very large, and people were able to massively add to their personal debt. In 2000, California home sellers took out a median net cash gain of $80,000… In 2005, the amount had climbed to $220,643.HELOC Debt

Think about some irresponsible shopping sprees you have gone on (we have all done it). When the bills came due, and you had to deal with the financial hangover, imagine if you had the magic money machine that kept making your cash pile larger, even as you worked to make it smaller. What could be better than that?

What do you think would happen if every borrower in California had the same idea? and they borrowed the equity in their homes?

California homeowners cummulative debt

Our individual HELOC abusing homeowner in the red shirt is the little speck on the left side. The rest is the stack of pallets loaded with bundles of consumer debts consolidated into mortgages through refinancing and mortgage equity withdrawal.

How big is the national problem?

national consumer debt and HELOC abuse

OK, OK, the debt is big. So what?

Well, the lenders lost much of that money, and when lenders lose money, it ceases to exist in our financial system, and we end up with deflation, zero percent interest rates (real interest rates are still high), and a stagnant economy. The worst part is that US taxpayers are being stuck with the bills. We will end up paying for this mistake for a generation.

In short, we will all be working — and paying our taxes — to pay off the spending sprees of HELOC abusers everywhere.

They got to have all the fun and spend irresponsibly while you worked hard, denied yourself indulgences and saved. They didn’t pay the borrowed money back, so now you have to pay it back for them. How do you feel about that? And what has this done to our society?

At least we will have some uses for our money.

Irvine Home Address … 14952 N Gainford Cir Irvine, CA 92604

Resale Home Price … $420,000

Income Requirement ……. $77,302
Downpayment Needed … $84,000

Home Purchase Price … $265,000
Home Purchase Date …. 9/22/2000

Net Gain (Loss) ………. $129,800
Percent Change ………. 58.5%
Annual Appreciation … 6.5%

Monthly Mortgage Payment … $1,804
Monthly Cash Outlays ………… $2,390
Monthly Cost of Ownership … $1,790

Redfin Property Details for 14952 N Gainford Cir Irvine, CA 92604

Beds 3
Baths 2 baths
Size 1,116 sq ft
($376 / sq ft)
Lot Size 5,096 sq ft
Year Built 1971
Days on Market 3
Listing Updated 10/7/2009
MLS Number S592003
Property Type Single Family, Residential
Community El Camino Real
Tract Wl

According to the listing agent, this listing may be a pre-foreclosure or short sale.

Beautiful single story detached home. Remodeled Kitchen with large dining area with breakfast counter and bar with granite. Bathrooms were also remodeled in 2005 with new cabinets with granite counters. Laminate flooring in front room with tile in kitchen. All ceilings are scraped and textured. Vaulted ceiling in the living room with a nice cozy fireplace. Crown molding in master bedroom. Garage attic storage w/hide a ladder. Over 5000 sq ft large lot with newer fence. Gas built in range. Newer roof. No Mello Roos or HOA’s. Close to Heritage Park Library and community center.

Today’s featured property is an interesting study in how coupling can lead to HELOC abuse.

  • This property was purchased on 9/22/2000 by a single man for $265,000. He used a $251,750 first mortgage and a $13,250 downpayment.

  • On 4/12/2004 a wife appears on title, and together they refinanced the first mortgage for $315,000. Paid for the honeymoon, right?

  • On 9/16/2004 they refinanced again for $381,500.

  • On 3/30/2005 they opened a stand-alone second for $50,000.

  • On 1/5/2006 they opened a stand-alone second for $50,000 and a $20,000 HELOC.

  • On 8/2/2006 they refinanced one last time with a stand-alone second for $119,100.

  • Total property debt is $500,600.

  • Total mortgage equity withdrawal is $248,850.

The guy goes 4 years without touching his equity, then he gets married and spends $250,000 in just over 2 years. Cause and effect? I don’t know, but it is an interesting change in behavior coincidental with the marriage. You decide… not that it matters….

{book5}

I was reading Mish’s blog yesterday, and he posed a hypothetical question I believe I can answer:

What Did We Get For The Trillions Of Dollars Spent?

Sadly,
for all the 14 Trillion expansion in the Fed’s balance sheet, the $1+
trillion in various stimulus programs, and monetary printing to the
tune of $1 trillion as well, the economy has nothing to show for it
other than a stock market rally.

The wealthy have been bailed
out, while the middle class and poor are stuck without a job in
underwater mortgages, hoping for scraps of mortgage payment reductions
when many would be better off walking away. Meanwhile boomers are
headed into retirement, underfunded and scared half to death.

What did we get? We paid off this former owner’s $248,850 in HELOC abuse — that’s what we get.

Turtle Rock Speedway

Suburban living does not have to be dull. Today we will look at the exciting Turtle Rock Speedway and an interesting suburban hike.

2 Queens Wreath Way Irvine, CA 92612 kitchen

Irvine Home Address … 2 Queens Wreath Way Irvine, CA 92612
Resale Home Price …… $500,000
{book5}

Walking down the hall
Like a soft heartbeat
I won’t wake up
Cause by the time that
I do you’ll be gone
I won’t look back
On a past so long
I won’t look back
On the things gone wrong
I won’t look back
Cause by the time that
I do you’ll be gone

Gone — Melody Gardot

Fifteen years, and $350,000 later, these owners have spent their home. Their equity is gone, spent on who knows what. Perhaps they bought some video games?

I have been playing far too much Mario Kart Wii lately. My entertaining family diversion inspired today’s post….

Turtle Rock Speedway

Tucked away in a quiet corner of Irvine is one of the most exciting racing circuits in the country. It doesn’t accommodate motor vehicles, and it probably would not stand up to a pack of bicycles, but if you are looking for a great place to race your children on bikes, scooters, rollerblades or even on foot, then Turtle Rock Speedway is waiting for you.

Speedway Turtle Rock Map

If you don’t have two cars to coordinate dropoff and pickup, you will
either have to park at the top of the hill, race down, then walk all
the way back up, or you can park at William R. Mason Park, walk up the
hill to the starting point, and finish near your car. I personally
would prefer the latter.

The course itself is 1.62 miles, and it drops significantly in elevation from start to finish. If you are on wheels, you can complete the entire course with minimal effort.

Turtle Rock Speedway downhill

It starts at a park at the intersection of Sycamore Creek and Turtle Rock Drive. There is a neighborhood park there with private pool and tennis for Turtle Rock residents. (They will probably be annoyed if you park your car there, but too bad, that is where the track begins.)

Sycamore Creek and Turtle Rock Drive Park

First, as a disclaimer, I am not encouraging anyone to go flying down this hill at breakneck speeds. If you go there, race too fast and hurt yourself, you are a fool who needed no encouragement from me.

The course starts in a district I call the “Suburban Slalom.” It is characterized by gently falling terrain, eucalyptus canopies, and…

Turtle Rock Walk 6

numerous entertaining corners.

Turtle Rock Walk 7

This part of the track presents the best viewing opportunities for spectators, particularly on the open lawns elevated above the track.

Turtle Rock Walk 9

Once you wend your way ’round the perilous slalom, you will be heading steeply downhill into Heaven’s Gate.

Turtle Rock Walk 4

Turtle Rock Walk 5

Once you have exited the tunnel, you will circle the Catholic Church at the corner — hence Heaven’s Gate. (Also, if you hate this post, you can use the Heaven’s Gate reference to the worst movie ever made.)

From there, the course moves back between the condos in another tree-lined avenue. This is the location to make your move. The track begins to drop off more steeply as you make the final decent from the hillside down to the Creekside Flats.

Turtle Rock Speedway uphill

You can pick up too much speed if you are not careful, and when you emerge from the trees, there is a sharp right turn at the Devil’s Elbow, then there is another sharp bender to the left. From there it is a race across the Creekside Flats to one of three good finish-line locations.

Turtle Rock Speedway finish

The intersection of Culver and University is as far as the path can
take you without crossing any streets, so it is a natural location to
stop. The first finishing location is where a small tributary crosses the main creek. It is a low point just before an important fork, and there is plenty of time to stop before getting to the streets. The other finish lines are closer to the street. You should decide in advance in case you have a photo finish.

Suburban Hiking in Turtle Rock

Turtle Rock, like most Irvine Villages, has wonderful nieghborhood amenities. The three-mile long walking trail is part of a larger network that ties together William R. Mason Park with Turtle Creek Community Park. This is one of the more interesting suburban hikes in our area.

Turtle Rock Suburban Hike

If you start in either park, you will have an uphill trudge to begin your journey. The drop to Turtle Creek Community Park is steeper, but a bit less interesting to travel. The starting point for Speedway Turtle Rock is a park at the half-way point on this hike. If you plan to walk, I would allow an hour each way. There are public restrooms at the parks at each end of the trail.

{book}

Let’s take a look at a property near Speedway Turtle Rock in University Park.

2 Queens Wreath Way Irvine, CA 92612 kitchen

Irvine Home Address … 2 Queens Wreath Way Irvine, CA 92612

Resale Home Price … $500,000

Income Requirement ……. $92,027
Downpayment Needed … $100,000

Home Purchase Price … $206,000
Home Purchase Date …. 4/22/1995

Net Gain (Loss) ………. $264,000
Percent Change ………. 142.7%
Annual Appreciation … 9.9%

Monthly Mortgage Payment … $2,147
Monthly Cash Outlays ………… $2,830
Monthly Cost of Ownership … $2,120

Redfin Property Details for 2 Queens Wreath Way Irvine, CA 92612

Beds 3
Baths 2 baths
Size 1,741 sq ft
($287 / sq ft)
Lot Size 4,753 sq ft
Year Built 1967
Days on Market 2
Listing Updated 10/8/2009
MLS Number S591952
Property Type Single Family, Residential
Community Westpark
Tract Othr

According to the listing agent, this listing may be a pre-foreclosure or short sale.

Open floorplan, large kitchen, dining room area opens to patio and rear yard. 3 bed, 2 bath, home in desireable Irvine area on cul de sac near UC and fwys, needs TLC. Beautiful tennis facility, pool, spa and park

  • This house was purchased for $264,000 on 4/22/1995. The owners used a $185,300 first mortgage and a $78,700 downpayment. Not to worry, they got their downpayment back and then some.

  • On 8/30/2005 they refinanced the first mortgage for $405,000 and opened a HELOC for $125,000.

  • Total property debt $530,000.

  • Total mortgage equity withdrawal is $344,700.

Foreclosure Record
Recording Date: 06/04/2009
Document Type: Notice of Default
Document #: 2009000286409

Where is all that HELOC money? Gone. Where are the owners going to be soon? Gone.

Median as Market Price Measurement

Do you understand and trust the measures of market prices? Today we will explore the median sales price as a measurement of market prices.

14951 Sumac Ave Irvine, CA 92606 back

Irvine Home Address … 14951 Sumac Ave Irvine, CA 92606
Resale Home Price …… $720,000

Cause I was born lonely down by the riverside
Learned to spin fortune wheels, and throw dice
And I was just thirteen when I had to leave home
Knew I couldn’t stick around, I had to roam

But I got to ramble (ramblin’ man)
Oh I got to gamble (gamblin’ man)
Got to got to ramble (ramblin’ man)
I was born a ramblin’ gamblin’ man

Ramblin’ Gamblin’ Man — Bob Seger

Is everyone ready to gamble on the housing market again? Are prices going up again? Are you sure?

Median as Housing Market Price Measurement

There is no perfect measure for any broad financial market activity.
Markets for stocks, bonds and other securities are the most widely
reported and measured financial markets. It is relatively easy to
measure activity in these markets because all sales are recorded at a
few central exchanges and the “products” are uniform (one share of
stock is equal to another). In contrast, real estate markets are much
more difficult to evaluate. Real estate transactions are recorded
into the public record in thousands of locations across the country.
Keeping an organized database of these records is such a daunting task
that the title insurance industry has taken this responsibility as part
of its business model, and many people are devoted to the arduous task
of obtaining and organizing these records on a daily basis.

Real estate
does not have the uniformity of stocks or other financial instruments.
Each property has unique qualities that differentiate it from all other
properties making like-kind comparisons very difficult. Geographical
location is a major influence on the value of real estate. Even if two
properties could be found with identical physical characteristics, the
values of these properties could vary considerably based on where they
are located. Ideally, a market measure would record the changes in
sales prices of identical assets or in the case of an index, a group of
similar assets. The unique nature of real estate assets makes it
difficult to use standard measures of reporting utilized in other
financial markets.

Due to the problems of asset uniformity and variability based on
location, real estate markets are typically measured using some form of
median pricing over a specified geographic area. The median is a
statistical measure of central tendency where half the data points are
above and half the data points are below. For instance, in a list of 5
numbers sorted by size ($100,000, $200,000, $300,000, $500,000,
$900,000,) the third number in the list ($300,000) would be the median
because it has two numbers that are larger and two numbers that are
smaller. The median ($300,000) is used rather than an average
($400,000) because a few very expensive properties can increase the
average significantly, and the resulting number does not represent the
bulk of the price activity in the market.

Median Home Prices, 1968-2006

Median Home Prices, 1968-2006

Median is Not Perfect

One of the problems with a median as a measure of house prices is a
lag between when a top or a bottom actually occurs and when this top or
bottom is reflected in the index. During the beginning of a market
decline, the lower end of the market has a more dramatic drop in volume
than the top of the market. This causes the median to stay at
artificially high levels not reflective of pricing of individual
properties in the market. In other words, for a time things look better
than they are.

Then as the price decline takes hold, transaction volume picks up at the low end and drys up at the high end. The flood of low-end transactions at much lower price points makes the median snap back and make the decline look worse than it really is.

Finally, as the price decline wears on, transaction volume will begin to accelerate at the high end — at much lower price points. This activity is still above the median, so the median moves higher whereas prices are actually moving lower.

At the beginning of a market rally, transaction volume
picks up at the bottom of the market at first restarting the chain of
move ups. During this time, the prices of individual properties can be
moving higher, but since the heavy transaction volume is at the low
end, the median will actually move lower.

With all variability caused by changes in the product mix, the median is a poor record of market tops and bottoms, and it is prone to show a direction of market prices that is incongruous with what is happening with individual properties.

Other Distortions of Median

The median has another significant weakness: it does not indicate
the value buyers are obtaining in the market. The houses or structures
built on the land compose the most significant portion of real estate
value in most markets. These structures deteriorate over time and
require routine maintenance that is often deferred. During times of
prosperity, many people renovate homes to add value and improve their
living conditions. The impact of deterioration and renovation of
individual properties is not reflected in the median resale value.

Also, at the time of sale, there are often buyer incentives which
inflate the recorded sales price relative to the actual cost to the
buyer. These buyer incentives also distort the median sales price as a
measure of value.

Median is the Best We Have

With all these distortions of market reality, it is a wonder the
median is used at all. Winston Churchill noted, “It has been said that democracy is the
worst form of government except all the others that have been tried.” The same is true of the median. We use it not because it is perfect, but because it is the best available for the task. Despite its weaknesses, distortions in the index
are not extreme, and it is the best tool available that provides a
meaningful number.

Tomorrow, we will look at Alternate Market Price Measurements including the more reliable S&P/Case-Shiller Index.

14951 Sumac Ave Irvine, CA 92606 back

Irvine Home Address … 14951 Sumac Ave Irvine, CA 92606

Resale Home Price … $720,000

Income Requirement ……. $132,518
Downpayment Needed … $144,000

Home Purchase Price … $41,500
Home Purchase Date …. 4/25/1973

Net Gain (Loss) ………. $635,300
Percent Change ………. 1634.9%
Annual Appreciation … 8.2%

Monthly Mortgage Payment … $3,092
Monthly Cash Outlays ………… $4,030
Monthly Cost of Ownership … $3,010

Redfin Property Details for 14951 Sumac Ave Irvine, CA 92606

Beds 4
Baths 2 full 1 part baths
Size 1,873 sq ft
($384 / sq ft)
Lot Size 5,500 sq ft
Year Built 1972
Days on Market 3
Listing Updated 10/6/2009
MLS Number S591760
Property Type Single Family, Residential
Community Walnut
Tract Cp

Fantastic 2 story home located in the very desirable College park community. Enjoy this very open floor plan featuring 4 BR, 3 baths, formal dining room, very large living room and family room with view of pool. The home is extremely clean and has been very well maintained, new paint throughout much of the house, professionally cleaned carpets, and fantastic large backyard with pool for entertaining. Also enjoy the great association pool located just down the street from the property.

I must admit, this one made me sad when I reviewed it. When I saw a discretionary seller from 1973, I hoped I would find a property with zero debt. They bought 36 years ago; surely they paid it off by now, right? Well, this is Southern California…

By 2001, they had the debt up to $231,000. By the time they stopped borrowing in 2006 when they took out a 1-year ARM for $340,000. WTF is a long-term owner doing with a $340,000 1-year ARM? Sophisticated financial management?

I guess this won’t be a short sale as this is about a 50% LTV. I was hoping to profile a celebration of zero debt, and instead I find $340,000 worth of HELOC abuse. It is sad… 🙁

Where Are They Now?

Today we are going to look at two of the more colorful losers to emerge from The Great Housing Bubble; David Lereah and Casey Serin.

2313 Watermarke Pl Irvine, CA 92612 kitchen

Address: 2313 Watermarke Pl Irvine, CA 92612
Asking Price: $350,000
{book2}

Where are you going
With the long face pulling down
Dont hide away like an ocean
But you can see, but you can smell and the sound
Of your waves coming down
I am no superman not at all
But I have no answers for you
I am no hero, and thats for sure
But I do know one thing
Where you go, is where I want to be
Where are you going?
Where do you go?

Where Are You Going? Dave Matthews Band

There are a number of important people who played a role in The Great Housing Bubble. Some of the more famous ones have written books or had books written about them. There are men like the Tan Man, Anthony Mozilo, who are infamous in housing blog circles, but who emerged from the bubble wealthy and with limited legal problems. Today, I want to look at a couple of D-List players who failed spectacularly. These are colorful men who will be footnotes in housing bubble history.

Casey Konstantin Serin

Casey Serin was the infamous blogger of I am Facing Foreclosure blog. He purchased nine properties in a few months during early 2006 using liar loans. He rolled the dice on the housing bubble, and came up snake eyes.

He has managed to get a Wikipedia entry made about him as he has made a career out of his failure. The following is a list of Serin’s known mainstream press coverage in reverse chronological order.

Casey Serin has come to epitomize everything that went wrong with the real estate bubble. At least he understands the importance of positive cashflow now…

Jon Ronson interviewed Casey with his trademark wit on BBC Radio.[22] While in Australia, Casey Serin appeared on Top Shelf Radio with Robbie Buck[26]. The Official IAFF (I Am Facing Foreclosure) Theme Song received 400 plays in one day during Serin’s rise to fame — a small example of his cult-like status among bloggers. Apparently, Casey is still trying to cash in on his infamy. The latest attempt is a book called The Foreclosure Code Book. Having gone through it nine times, he is certainly an expert on foreclosure now.https://www.irvinehousingblog.com/wp-content/uploads/2007/04/nardavid_lereah.jpg

David Lereah

David Lereah was the chief economist for the National Association of Realtors during the housing bubble. He wrote about about the virtues of investing in residential real estate just as the market was peaking. He was as wrong as wrong can get and as public as one could possibly be. I cringe when I think about it.

In his heyday, there was a blog devoted to watching for his fall. With his fall from prominence, the blog isn’t updated as much as it used to be. It will sit there like a dormant archive of his misdeeds waiting to strike him down if he rises up again.

BTW, did you know that David Lereah wrote a book touting tech stocks that came out in early 2000? This man’s timing is amazing. He managed to write two books that came out right at the peak of their respective financial bubbles that were totally wrong!

For the sake of contrast, let’s compare David Lereah with Robert Shiller, an author who also had books come out at the peak of the NASDAQ bubble in early 2000 and the peak of the Great Housing Bubble in 2006. Robert Shiller correctly called the top of both financial bubbles and laid out a conceptual framework that better explains asset price movements.

Robert Shiller was right, and he was very publically right at the perfect time. David Lereah and Robert Shiller are the outliers — the two extremes of being wrong and being right.

David Lareah's book covers

It hasn’t turn out well for Mr. Lereah. I was interviewed for a Wall Street Journal follow up that appeared on the front page of the print version in January of 2009. It was a hit piece; Realtors’ Former Top Economist Says Don’t Blame the Messenger.

Mr. Lereah admits to one mistake: believing there would be no national
housing crash. “I have to take the blame for that,” he says. “I never
thought it would be as bad as this.”

{insert humorous quip that disguises my gloating over his demise} Nobody saw the collapse of housing prices back then, right?

So where is David Lereah now? From the WSJ article:

Mr. Lereah now works in a small upstairs office that doubles as an
exercise room. He has started his own company, Reecon Advisors, that
puts out a weekly newsletter on the housing market and provides
consulting services. “I feel I have such a refreshing view now because
I’m not representing any interests,” says Mr. Lereah.

He charges $495 annually for the newsletter, and currently has fewer than 50 paying subscribers

So the most powerful real estate economist in the country is now making $25,000 a year ($495 x 50) and working out of his exercise room. How the mighty have fallen…

2313 Watermarke Pl Irvine, CA 92612 kitchen

Address: 2313 Watermarke Pl Irvine, CA 92612

Asking Price: $350,000

Income Requirement: $64,419
Downpayment Needed: $70,000

Purchase Price: $501,000
Purchase Date: 8/26/2005

Net Gain (Loss): -$172,000
Percent Change: -30.1%
Annual Appreciation: -7.3%

Monthly Payment $1,813
Monthly Cash Outlays $2,321
Monthly Cost of Ownership $1,588

Redfin Property Details for 2313 Watermarke Pl Irvine, CA 92612

Beds 2
Baths 2 baths
Size 1,123 sq ft
($312 / sq ft)
Lot Size n/a
Year Built 2005
Days on Market 1
Listing Updated 10/2/2009
MLS Number S591293
Property Type Condominium, Residential
Community Airport Area
Tract Watr

According to the listing agent, this listing is a bank owned (foreclosed) property.

Experience the urban OC lifestyle in the sophisticated community of WATERMARKE providing you with amenities such as Concierge sevice, fitness center, pool, spa, tennis, movie room, etc.

Casey Serin made nine purchases similar to this one. The property was purchased on 8/26/2005 for $501,000. The owners used a $400,800 first mortgage and a $100,200 second mortgage; there was no downpayment. They refinanced in April of 2007 and took out $12,000. I imagine they needed some help with the payments…

On 9/21/2009 HSBC BANK USA NATIONAL ASSOCIATION bought it at auction for $427,500. Just as in Casey Serin’s case, the lenders are the ones who absorbed the losses from the speculation.

Balance in the System

In a way, the Casey Serin’s of this world do serve as a check and balance on our banking system. When lenders are not regulated — and really stupid — the Casey Serins of this world rise up and cause such enormous losses that it brings down the whole system. Casey Serin was not trying to break the law (he did most of his malfeasance in ignorance); think about the scope and scale of the fraud that was perpetrated. Very little was ever caught.

Good financial regulation may or may not have prevented The Great Housing Bubble. Absent any future regulatory changes, the only thing standing between us and another housing bubble is the willingness of lenders to inflate one. How long before they lose their minds again?