- This topic has 86 replies, 14 voices, and was last updated 16 years, 10 months ago by
Anonymous.
-
AuthorPosts
-
July 7, 2007 at 10:01 AM #64466July 7, 2007 at 10:01 AM #64525
Allan from Fallbrook
ParticipantJWM, you realize you represent the exception and not the rule, correct?
Most Americans are in “dis-saving” mode (to use the old Econ101 phrase). The majority most likely to feel the impact are those homeowners who not only purchased an over-valued home, but then proceeded to pile debt on top of that, in the form of 2nd/3rd mortgages, home equity lines and credit cards. It is not even a matter of being in over one’s head, people have added so much debt (and at increasingly egregious rates), it exceeds any rational ability to pay it off.
I used a hypothetical example of a Temecula homeowner previously, but actually do know several people in that neck of the woods who fall into this category.
In one case, the family purchased a $635k house (they make a combined $92k in salary), and then added two more HELOCs totaling $194k. The HELOCs were for home upgrades (pool, landscaping, new kitchen and bath), as well as “toys” (new GMC Denali for the wife and a boat). Their 1st was a 2/28 with a teaser rate (1.5% for the first two years) and then prime + following. It resets this month, and they are already stretched due to debt service costs, gas (they both commute to SD each day) and necessities. The house is on the market for $725k (down from $760k), with no offers to date. Ugly? You bet.
But my sense is that in communities like Temecula, Murrieta, Corona, Moreno Valley, etc, this is the norm and not the exception. And the vast majority of families out there are closer to the US median per capita rate ($43k per household earner) than the six figures + per year needed to just service this kind of debt.
July 7, 2007 at 11:43 AM #64480JWM in SD
ParticipantYes Allan, I fully realize that my wife and I are not the norm here in sunny SoCal. As much as I like the weather and the geography, the native Chicagoan (south sider) in me was taken back by the how many people seem to be living in LaLa land here. Is it the sun or what???
None of it made sense to me when I first got out here. I’m a CPA with finance / audit experience in public accounting and manufacturing industries (now I’m in Project Management PMP designation). I had formal training in Time Value of Money principles and I couldn’t figure out how people were affording the 600 to 800K homes on such mediocre incomes. Then I discovered that it was done with I/O and neg am loans. All they were doing was moving principal out to future years.
As far as the Temecula couple you spoke of, that is what suspect is going on all over SD and Riverside county and to a lesser extent in OC. My wife and I make a combined income of over 220K. My income alone is well above that couple’s combined income and I would not consider paying 700K for a house our income level. It’s too much money.
I pissed off a few people here with my posts on the other thread. I will make it a point to moderate my tone, but I reserve the right to call a troll a troll when I see one.
July 7, 2007 at 11:43 AM #64539ParticipantYes Allan, I fully realize that my wife and I are not the norm here in sunny SoCal. As much as I like the weather and the geography, the native Chicagoan (south sider) in me was taken back by the how many people seem to be living in LaLa land here. Is it the sun or what???
None of it made sense to me when I first got out here. I’m a CPA with finance / audit experience in public accounting and manufacturing industries (now I’m in Project Management PMP designation). I had formal training in Time Value of Money principles and I couldn’t figure out how people were affording the 600 to 800K homes on such mediocre incomes. Then I discovered that it was done with I/O and neg am loans. All they were doing was moving principal out to future years.
As far as the Temecula couple you spoke of, that is what suspect is going on all over SD and Riverside county and to a lesser extent in OC. My wife and I make a combined income of over 220K. My income alone is well above that couple’s combined income and I would not consider paying 700K for a house our income level. It’s too much money.
I pissed off a few people here with my posts on the other thread. I will make it a point to moderate my tone, but I reserve the right to call a troll a troll when I see one.
July 7, 2007 at 1:05 PM #64486ParticipantJWM, my background is in corporate finance and accounting. As a former CFO, my job was primarily financial analysis, and for large general construction and engineering firms that were clients of ours. As such, you get very good at slicing up the numbers and, with construction and engineering firms, cash flow is key.
I make the same point in my conversations with folks about housing, credit and net worth. I have been harping on the housing market for over three years now, and I personally remember the last bust (1989) here in SoCal.
Based on the reactions I get from people, you’d think I had grown a third eye. Basic macroeconomic theory and fundamental financial principles go right out the window when you discuss housing in SoCal.
The irony is that many of the people I speak with are college educated, white collar professionals with more than a passing knowledge of finance. A quick glance at history shows the Dollar Bubble (1997) and the NASDAQ bubble (2000) bursting, but somehow the housing bubble is not only different, but immune from both historical precedent and the laws of economics.
I saw the exchange with Scruffy a few days back, and he represents an archetype of what I loathe most about this situation: Someone who should know better, and probably does, but steers people into a horrifically bad decision regarding the largest purchase of their lives.
You mention income level. I purchased a house in Fallbrook in 2003 for $425k, with $75k down. The monthly payment represents less than 20% of my monthly net, but I remember being nervous about committing to a mortgage of that size. Looking at some of the mortgages being secured at present, and for houses that are completely over-valued, I realize how truly out of whack both the market and the accompanying Pollyanna mentality are right now.
Hang on and enjoy the ride, because when this market corrects, it’s going to be real ugly.
July 7, 2007 at 1:05 PM #64545ParticipantJWM, my background is in corporate finance and accounting. As a former CFO, my job was primarily financial analysis, and for large general construction and engineering firms that were clients of ours. As such, you get very good at slicing up the numbers and, with construction and engineering firms, cash flow is key.
I make the same point in my conversations with folks about housing, credit and net worth. I have been harping on the housing market for over three years now, and I personally remember the last bust (1989) here in SoCal.
Based on the reactions I get from people, you’d think I had grown a third eye. Basic macroeconomic theory and fundamental financial principles go right out the window when you discuss housing in SoCal.
The irony is that many of the people I speak with are college educated, white collar professionals with more than a passing knowledge of finance. A quick glance at history shows the Dollar Bubble (1997) and the NASDAQ bubble (2000) bursting, but somehow the housing bubble is not only different, but immune from both historical precedent and the laws of economics.
I saw the exchange with Scruffy a few days back, and he represents an archetype of what I loathe most about this situation: Someone who should know better, and probably does, but steers people into a horrifically bad decision regarding the largest purchase of their lives.
You mention income level. I purchased a house in Fallbrook in 2003 for $425k, with $75k down. The monthly payment represents less than 20% of my monthly net, but I remember being nervous about committing to a mortgage of that size. Looking at some of the mortgages being secured at present, and for houses that are completely over-valued, I realize how truly out of whack both the market and the accompanying Pollyanna mentality are right now.
Hang on and enjoy the ride, because when this market corrects, it’s going to be real ugly.
July 7, 2007 at 3:25 PM #64520Anonymous
GuestJWM: “…the native Chicagoan…in me was taken back by how many people seem to be living in LaLa land here. Is it the sun or what???…”
No, it’s not the sun. It is:
http://piggington.com/love_of_god_vs_love_of_moneyCorrelation coefficient of -71%. That is stunningly high.
Illinois is (just barely, though!) on the ‘virtuous’ side.
Someone please come up with a better (i.e., higher than 71% correlation coefficient) explanation as to why we, MA, and NY have such a mess on our hands, much worse than The Heartland.
Yep, things are amiss here in SoCal, and not just in Temecula/Murrieta/Corona.
Preemptive appeal to The Bench (admin) and Gunny Hunny: JWM asked a question, and I merely provided a data-driven, naturally-following answer.
I’ll go crawl back under my rock, now.
July 7, 2007 at 3:25 PM #64579GuestJWM: “…the native Chicagoan…in me was taken back by how many people seem to be living in LaLa land here. Is it the sun or what???…”
No, it’s not the sun. It is:
http://piggington.com/love_of_god_vs_love_of_moneyCorrelation coefficient of -71%. That is stunningly high.
Illinois is (just barely, though!) on the ‘virtuous’ side.
Someone please come up with a better (i.e., higher than 71% correlation coefficient) explanation as to why we, MA, and NY have such a mess on our hands, much worse than The Heartland.
Yep, things are amiss here in SoCal, and not just in Temecula/Murrieta/Corona.
Preemptive appeal to The Bench (admin) and Gunny Hunny: JWM asked a question, and I merely provided a data-driven, naturally-following answer.
I’ll go crawl back under my rock, now.
July 7, 2007 at 4:33 PM #64530ParticipantJG: Boy, you take the admonition to bring data quite seriously, don’t you?
I would hasten to add my use of Temecula/Murrieta/Corona was illustrative only in the sense that they are near my home, and I agree that the rot is quite widespread through SoCal (and Central and Northern California, for that matter).
There is a bloodletting of fairly epic proportions going on in Sacto right now, and I have been following the Crisp Realty saga closely through the local news up there. Not for any newsworthy reasons mind you, solely for the prurient thrill and titillation factor inherent to watching David Crisp (he of the Gulfstream jet, Armani suits and Ferrari) brought low.
As far as the Middle West goes, my family hails from Illinois, Michigan and Wisconsin. They seem to be not only more down-to-earth there (in terms of not caring so much about appearances and pretension), but also more careful with a buck. As a kid, I was somewhat appalled at the almost medievel frugality of my Midwest German clan, but now realize the dynamics of what drove it.
A friend of my mine does quite a lot of work in parts south, and travels to Miami frequently as a result. The housing market, and especially condos, is getting savaged down there. Not only that, but many of the highly touted new condo developments on Biscayne have shuttered operations without ever breaking ground.
Maybe us spendthrift coastal types just figure we are smarter and know something our more mundane, and more parsimonious, midwestern brethren don’t.
July 7, 2007 at 4:33 PM #64589ParticipantJG: Boy, you take the admonition to bring data quite seriously, don’t you?
I would hasten to add my use of Temecula/Murrieta/Corona was illustrative only in the sense that they are near my home, and I agree that the rot is quite widespread through SoCal (and Central and Northern California, for that matter).
There is a bloodletting of fairly epic proportions going on in Sacto right now, and I have been following the Crisp Realty saga closely through the local news up there. Not for any newsworthy reasons mind you, solely for the prurient thrill and titillation factor inherent to watching David Crisp (he of the Gulfstream jet, Armani suits and Ferrari) brought low.
As far as the Middle West goes, my family hails from Illinois, Michigan and Wisconsin. They seem to be not only more down-to-earth there (in terms of not caring so much about appearances and pretension), but also more careful with a buck. As a kid, I was somewhat appalled at the almost medievel frugality of my Midwest German clan, but now realize the dynamics of what drove it.
A friend of my mine does quite a lot of work in parts south, and travels to Miami frequently as a result. The housing market, and especially condos, is getting savaged down there. Not only that, but many of the highly touted new condo developments on Biscayne have shuttered operations without ever breaking ground.
Maybe us spendthrift coastal types just figure we are smarter and know something our more mundane, and more parsimonious, midwestern brethren don’t.
July 7, 2007 at 8:12 PM #64556GuestYou and JWM and cf know better than I do, but the pace of life is slower in the Midwest, or at least it used to be.
After my Navy and grad school days, my wife and I moved to Minneapolis, in ’92. Blue Laws were de jure or de facto in effect; many, many stores were closed on Sundays in White Bear Lake, where we rented until we bought a home in Edina.
Why were Blue Laws in effect? I am not allowed to answer that on this website. But, having fewer commercial options on Sundays seemed good and calming and family-affirming.
The upcoming recession and depression will give us a de facto return to Blue Law Sundays, as business slows and storeowners look to cut costs.
July 7, 2007 at 8:12 PM #64615GuestYou and JWM and cf know better than I do, but the pace of life is slower in the Midwest, or at least it used to be.
After my Navy and grad school days, my wife and I moved to Minneapolis, in ’92. Blue Laws were de jure or de facto in effect; many, many stores were closed on Sundays in White Bear Lake, where we rented until we bought a home in Edina.
Why were Blue Laws in effect? I am not allowed to answer that on this website. But, having fewer commercial options on Sundays seemed good and calming and family-affirming.
The upcoming recession and depression will give us a de facto return to Blue Law Sundays, as business slows and storeowners look to cut costs.
-
AuthorPosts
- You must be logged in to reply to this topic.