patrick.net

I have two bubble stories (firsthand) In-laws listed home on golf course in Summerlin in Vegas - drove to North Carolina and bought a home to be near their kids...... problem is, the house is still listed in Vegas. It's been five weeks.

Great friends live in California 40 min South of BA - bought a house less than two years ago - their father is ill in Texas and they want to sell, take the money and run out of state. She's a Realtor and predicts a strong correction - even a 5% dip will take out huge chunks of their perceived wealth. They have had it listed for over six weeks and I believe they've just lowered it 20K - still no takers. House payment of nearly 4K a month .. not including taxes and insurance. Ouch.

Great friends live in California 40 min South of BA

Let me guess... Hollister?

I have some friends who wanted to move up into a bigger house. They actually should have been able to move up. They make a combined 300K a year and bought their house before the housing boom and refinanced the house so their payments were only $1600 mo. (really nice 4b/3ba in an upscale neighborhood). Sounds great right?

Well, they went a little nuts with the equity in the home. All new appliances (house didn't need it) $10,000 spent to faux paint the kitchen cabinets (didn't need it), new cars, trailer for camping, fake boobs (didn't need those either), you get the picture. Long story short, they can't afford to move up to a bigger home, and I can't even begin to guess how in debt they really are because they also eat out several times a week, buy lots of new clothes and so on and so on. What should have been a really good position to be in could be ugly before too long due to all that large livin'.

I don't know how common this is, but I doubt it's all that UNcommon.

In-house ATM, right?

I have a business idea: let's make in-house ATMs (literally)?

Banks can put semi-mobile ATM machines (like those in restaurants) in people's living rooms. Through a regular phone line and an "automatic home equity process" homeowners can literally withdraw cash from the ATM machine. The green one, you know.

Imgaine this in "As seen on TV".

Of course, the in home ATM will have to come in designer colors so it doesn't clash will the newly bought decor.

Yeas, stainless steel ATM machine, right next to the kitchen, with matching granite on top.

I have another friend who's doing basically the same thing, but less further along in the debt load. They sold their crackerbox house in So-Cal, and bought a much bigger, nicer one up here. The husband is trying to get a new business off the ground, but that hasn't stopped them from buying a new boat and some new furniture. My friend told me her husband got mad at her one month because she'd spent $10,000 that month. This is just on stuff, not the mortgage or any of the utility bills. I just don't get it.

Oh, must have the granite.

Home equity is too tempting, no? It is self-financing - one can take an equity loan to pay for itself, with many other nice things, until it doesn't work any more.

Credit is available only when you do not need it.

This may be a good topic for the future:

“What sources of news and information do you use to form and sustain your opinion of the Housing Bubble? What sources do you believe, and what sources are not believable?”

TWIT - Actually, that was kind of the idea behind "I See Debt People", but I like the added twist of credible vs. non-credible sources.

Credit is available only when you do not need it.

All too true. Let me ask you this. Do you think people like this will be as hard hit as those who pay too much for a house? After all, my friends can sell a lot of their stuff (probably not the implants) and get out from under at least some of the debt. They'll still be on the hook for home improvements, but some would argue since that increases the value of a home it's not at much risk. There's no way to really asses what the real debt load is, but maybe you could make a guess as to what the impact of this kind of spending could have on the market overall.

I have a business idea: let’s make in-house ATMs (literally)?

Banks can put semi-mobile ATM machines (like those in restaurants) in people’s living rooms. Through a regular phone line and an “automatic home equity process” homeowners can literally withdraw cash from the ATM machine...

Sorry Peter/SactoQt, someone already beat you to it: tinyurl.com/77fql

Sorry Peter/SactoQt, someone already beat you to it: tinyurl.com/77fql

Damn. They always do.

Well, at least they put the granite on top.

All too true. Let me ask you this. Do you think people like this will be as hard hit as those who pay too much for a house?

I think people get hit because of unsustainable spending based on unrealistic expectations. Unless they have "spent" the money it on sound investments it is not going to help at all.

After all, my friends can sell a lot of their stuff (probably not the implants) and get out from under at least some of the debt. They’ll still be on the hook for home improvements, but some would argue since that increases the value of a home it’s not at much risk.

Hmm... well, as far as the cars/RVs go, they could always sell them, but will no doubt take a significant hit as new autos depreciate rather quickly. As far as appliances & home electronics go, it's even worse. They basically lose most of their (retail) value the moment they leave the store.

As for those home "improvements" go, it all depends on what kind of improvements were made. It's very rare to get a 100% dollar-for-dollar increase in home value for what you spend on improvements/renovations, I've read that 60% or less is much more typical --and that's assuming you sell reasonable soon after completeing them AND you were smart enough to select the kinds of things that made the most sense re-sale wise. From what you've already said, I'd assume that's highly unlikely.

Here's a good link on the subject: tinyurl.com/9aapu
(Note that the %s listed assumes the home is sold in ONE YEAR after improvements are completed --they drop off rapidly after that)

Oops, forgot to thank you too Peter. It makes sense when you look at it your way.

On a side-note, I have a couple of Realtors(tm) in the family who have told me two of the most overlooked, yet extremely cost-effective ways to increase curb appeal/re-sale value:

1. Give the place a thorough cleaning --inside & out. Just removing trashy/debris & clutter, raking up leaves, towing dead cars, etc. can have a surprisingly huge impact on buyers.

2. Basic landscaping. Amazing how much better the place looks from the curb when you've converted that dirt & weed patch to a nice green lawn, and pruned that exploding wisteria bush back so you can see out your front windows again.

Did you guys already see this? Interesting as well

Kiplinger's Personal Finance list of the 10 most vulnerable housing markets.

1. Boston: "Has lost 200,000 jobs since 2000."

2. Los Angeles: "Speculation and explosive price increases."

3. San Francisco: "Median home price ... is highest in nation."

4. Sacramento, Calif.: "Prices have climbed 27 percent in the past year."

5. Providence, R.I.: "No population growth and stagnant job growth."

6. Detroit: "With GM and Ford struggling, prospects ... look weak."

7. New York: "Big problem is out-migration."

8. Minneapolis: "Housing prices ... have climbed an annualized 9 percent over the past three years."

9. Fort Lauderdale, Fla.: "Aggressive buying by investors warrants ... inclusion."

10. Denver: "Concentration of employers in troubled telecom sector leads to ... risk."

2. Los Angeles: “Speculation and explosive price increases.”
3. San Francisco: “Median home price … is highest in nation.”
4. Sacramento, Calif.: “Prices have climbed 27 percent in the past year.”

Not to worry, SactoQt, those CA PIBs (Positive IntangiBles) will keep prices HERE from falling much. And if they do, all those cash-rich immigrants and/or wealthy transplants (who are currently sitting on the sidelines just waiting for this to happen) will jump in and bail everyone out.

"...cash-rich immigrants and/or wealthy transplants"

Sorry - I forgot to mention magnanimous parents/relatives.

Hmmm... I wonder if there's a better way of saying "cash-rich immigrants, wealthy relatives and affluent transplants"...

I've got it! :

Moneyed Immigrants, Rich Ancestors & Generous Expatriates
(MIRAGE)

Current prices in the Bay Area and CA are supported by the MIRAGE. If they do begin to fall, this MIRAGE will prevent them from falling too far.

Why anyone would hemorrhage money for a mortgage while house prices are so ridiculously high seems crazy to me. Maybe I’m wrong, or missing something obvious here and I’ll never own a house. Perhaps I should sell my stocks and dive into the housing market.

I guess I’m just too risk averse - aka afraid.

Or, maybe you're just too sane for the current market.
Or, maybe you're capable of performing basic arithmetic.
Or, maybe you haven't drunk enough of the NAAVLP(tm) Kool-Aid to blot out all reason yet.

NervousinOakland

I COMPLETELY understand. I still think you're doing the wise thing. But there will be those who will tell you to jump in with an IO, own for two years and flip the property. Because as we all "know," interest rates will never go down and values will only go up. Supported of course by MIRAGE. (very clever HARM btw) ;)

I'm in a pretty close situation to you, and I don't feel right jumping in either. So I am biased in this case. But every time I look at the fundamentals and ask myself, "can I afford to keep this house if the market crashes?" I inevitably, inexorably, indelibly say no.

NervousinOakland,

Maybe "insane" isn't the most appropriate term. Maybe it's "irrationally exhuberant", or "excessively greedy", or "wildly optimistic". I don't know...
Like SactoQt said, keep focusing on the fundamentals and you'll do fine. And don't buy into the Realtor(tm) propaganda about "if you don't buy now, you'll never own a home!" It's just a way to push your "fear" button and get you to make a foolish (but lucrative for them) decision.

Even in a correction, if folks still have access to easy money, they’ll proportionally distort the situation to the high price side (aka dark side) for those people who’ve worked hard to save.

I'm certainly no expert, I think Peter, HARM and TWIT will probably have some great info to give you. My thinking is that the access to easy money will probably not always be around. Once the NAAVLP's come due and inevitable foreclosures, BK's and so on start happening, I would think the banks will have to tighten lending in a late-in-the-game attempt to cover their losses. IMHO I don't think the situation will stay so distorted because the market won't bear it long term.

Motorcityjim

I don't know whether to laugh or cry.....

Even in a correction, if folks still have access to easy money, they’ll proportionally distort the situation to the high price side (aka dark side) for those people who’ve worked hard to save.

If history is any guide, I doubt that will be the case. Long-forgotten/discarded concepts like "lending standards" and "credit-worthiness" have a way of suddenly re-appearing in the aftermath of a major credit market crash/correction. I'm not so naive to think NAAVLPs will ever completely go away, or won't stage a come-back during the next housing bubble, but all credit-fueled bubbles eventually pop. This is what eventually puts an end to easy credit (for a while).

You guys joke about an in-house refinance ATM, but my local bank has advertising to this effect. It shows a woman in her pajamas standing at the sink in her bathroom with an ATM machine underneath the counter. “Need cash? Get it from your house!”

:-o
motorcityjim - You have GOT to send a copy of that to Patrick (p@patrick.net) so he can post it on the "Crash" page!

NervousinOakland,

Your most welcome --and thanks.
Except for the "I’m sure we’ll feel pity for those same folks" part, i totally agree with you ;-). Seriously, I won't feel any pity for the greedy-assed speculators/flippers, but I'll feel bad for FTBs, who through ignorance or peer pressure, felt they had to overextend or they'd be priced out forever.

As for the Bubble metrics, check out "I See Debt People" (previous thread) from the main page. That was the whole point of that thread.

Thanks, motorcityjim --a scan would be perfect!

Ptiemann

Their home is soooo nice. A move up is based solely on greed. The wife is very status conscious and always wants more, more, more. I think the husband just gets worn down and gives in. I don't envy him.

When they talk about a "new paradigm without real estates" or "housing is dead", buy, buy, buy!

"They" refers to the lemmings.

"I do not understand why someone who already has 4 bedrooms does need to move up into a bigger house."

This touches on a pet topic of mine. It is interesting how monotonous the California housing stock is. We have such awful architecture that houses are essentially differentiated by three things: location, size and appliances, in that order. Location I can understand, but why someone would pay $500K more for more of the same stucco crap is beyond me. Its just more useless rooms to pay someone else to vacuum.

My theory is that, as our aesthetic senses have been dulled by modernism, the only attribute we can easily use as a social marker is size. California, being the end-point of rootless modern individualism, suffers from the problem in a comically amplified manner. Therefore, we have "Luxury" homes that have been thrown up in the same exact manner as the "Starter" homes the next development down, but which have maybe 50% more square footage, and better appliances. In ten years, they have the same stains on the stucco where the metal window frames and vents have bled onto them. They have the same cracked corners. They have the same permanent dingy aura that seems to attach to all new homes. They are simply bigger. It boggles the mind.

(I say this all as a native Californian. It is self-criticism.)

Cheerio,
prat

Almost forgot to mention Rock Financial. They are the local “screamer” type ads for mortgages, refinancing etc. They have a new loan product called “On The House”. If you listen to any radio here in the Detroit area you have probably heard these ads. “Want a fancy new car? How about a vacation? Plasma TV? It’s on the house! Get a home equity loan from Rock Financial and treat yourself today!”

Wow. I actually wish I'd thought of that tagline first --it's really clever. Scary... but clever.

EBR: Prat, have you read “Not So Big House?”

I haven't. I've flipped through it quite a few times in the book store, but it gives off a whiff of the westernized-peudo-asian aura of that bugs the living hell out of me (for reasons entirely irrational, I'll admit). I'm all for new urbanism, and particularly craftsman homes, but the quasi-japanese modernism that creeps into the pictures I see in the book sets my teeth on edge.

What I really want is Edinburgh's New Town, but here in California. Is that so much to ask?

Cheers,
prat

Prat
I think you hit the nail on the head with your theory about size over style or substance. The homes here are all pretty much the same. My parents bought in this area about 20 years ago, and every house in their neighborbood looks completely different. But the newer homes have about 5 different designs per neighborhood and that's it. So, I guess in the mind of the status oriented, the only way to get better is to get bigger.

I do actually have another bubble story, but I don't know all of the details. There is a house being built on the street behind us that's in a really weird location. I don't even really know how to explain it well. I think it's actually on the same lot as two other very small homes. It's wedged between one very small home that looks more like a guest house but there is no bigger house to go with it, and another standard middle class home. There is literally less than 5 feet from the house and the back and side fence. There is no front lawn as the house is probably less than 10 feet from the street. My husband and I have constantly remarked on the location, but we don't know much about zoning so we didn't think much more of it until a friend of my husband's came over. This friend used to build spec houses and he couldn't believe his eyes. He said there was no way this house was legal and no way it could pass zoning. He must be right, because the house is about 1/2 built, but no work has been done on it for the last 2 months or so. It's just sitting there. I don't know if they ran out of money, or can't pass the inspections. It should be mentioned that the place is pretty big too. It's got to be at least 3500 sqft. Every time I drive by, I think "who in their right mind is going to buy that thing." But I know that in this market there will be a "greater fool" sooner than later.

My Dad, who's in the car business has a saying about selling cars. "There's an ass for every seat." I wonder what the saying for the housing market could be.

TIM: "Probably another side effect of the credit bubble mania."

I'm a bit of a crank on this topic, and I lay the blame squarely on the modernist movement (and its bastard children) in architecture. By stripping away all detailing from buildings, the modernists destroyed the craftsmen and removed representation from buildings. This especially impoverished public buildings, but it removed meaning from the private space as well.

Basically, the architects and artists stopped believing in and speaking to our souls.

But I begin to bore...

Cheers,
prat