Show me The Bloodbath -- Not seeing it in Laguna Beach

[quote author="acpme" date=1217898941]we're talking right on the bluffs or sand where dolphins take pooping on your lawn.</blockquote>


Man... you have the dolphin poop problem too? I dunno which is worse, those pesky rabbits, or the projectile pooping dolphins? Thank gawd my gardener is here five days a week, but he has a busy day today, the dolphins were out in force this weekend.
 
<blockquote>When it?s a $4 million dollar beach front place that is upside down a million and you?ve got ten million in the bank, walking away is like saying I?m going to take a 10% loss on my entire portfolio. Those that are exposed are the people making $250,000 - $500,000 and struggled into a $3 million dollar loan because frankly, they think they are rich.

</blockquote>


<strong>NSR</strong>, this is exactly the home owner that interests me most. I know there are speculators/owners who bought in early with plans to sell when the market was good. Of course they quickly grew to love the lifestyle and feel entitled to it. They HELOC'd their multimillion dollar homes to fund trips to Europe, Juicy Couture, and their kiddies rehab. But those lines of credit have to be running out, right?



Surely it would only take one or two distressed homeowners to ruin the values for everyone inside the guarded compound. I have to believe the next 6 months will show significant loses in the upper end...but I've been saying that for a year now and I haven't been right yet. There are entire communities of custom builds in N.Coast that had 4 or 5 fold appreciation during the bubble. Shouldn't there be a few listings that if they sell result in a million dollar loss or more? Again - I don't have access to HELOC info so maybe they're there I'm just missing them. If you've seen them please post them.
 
http://www.irvinehousingblog.com/forums/viewthread/2758/



the high end is doing fine in SCl, SM, SF, and LA county. maybe laguna beach and CDM are doing well because they're the only parts of OC that remotely resemble a place a normal person with taste would want to live in OC...



of course, this could change. I personally think it will, and that almost every 'hood will be happy to only have a 30% haircut while many inland/"inner city" places are already looking at 60%+ from the peak.
 
[quote author="graphrix" date=1217899997][quote author="acpme" date=1217898941]we're talking right on the bluffs or sand where dolphins take pooping on your lawn.</blockquote>


Man... you have the dolphin poop problem too? I dunno which is worse, those pesky rabbits, or the projectile pooping dolphins? Thank gawd my gardener is here five days a week, but he has a busy day today, the dolphins were out in force this weekend.</blockquote>


Can you guys cool it with the dolphin comments? You're scaring <a href="http://www.people.com/people/tyra_banks">Tyra</a>.
 
Trophy properties that you all are referring to are rare indeed. They are homes for collectors who used them to define their status level. People who buy these homes do not scrape by just to make the mortgage payments. Buyers often had their eyes on the specific properties for years and waiting for them to come on the market. According to John McMonigle transactions are taking much longer to complete than the previous years due to clients taking a much longer time to decide among the available supplies.



The coastal locations are still by far well sought after than inland trophy properties. Some owners just list their properties for free PR boasting their WTF value with no intention of selling them. The subliminal advertising will build value through exposure. TV shows like Oprah who interviewed John on his 75 million dollar listing in CDM not only helped John?s reputation but also brought pedigree to a very ugly house.
 
[quote author="bkshopr" date=1217901347]TV shows like Oprah who interviewed John on his 75 million dollar listing in CDM not only helped John?s reputation but also brought pedigree to a very ugly house.</blockquote>


ugly?? bk can live in his outdated craftsmen bungalows. how many trees die in order to produce that exposed woodworking? all the cool, eco-friendly, nuevo-rich know that <a href="http://la.curbed.com/2007.02.portobello.jpg">fungus-based architecture</a> is the future of housing. the portobello estate was carved out of a giant mushroom on a foundation of seashells using dolphin poop mortaring.
 
I would not count on too many $3 mil loans going underwater any time soon. Lendingmaestro may disagree with me on this, but coming from a tax backround, it is my experience that my wealthier clients own their homes outright. Mortgage interest is only deductible to a maximum of $1,100,000 in first and HELOC loan amounts, and for most taxpayers, it is less, even if they have a higher mortgage.
 
[quote author="SacRenter" date=1217900408]

<strong>NSR</strong>, this is exactly the home owner that interests me most. I know there are speculators/owners who bought in early with plans to sell when the market was good. Of course they quickly grew to love the lifestyle and feel entitled to it. They HELOC'd their multimillion dollar homes to fund trips to Europe, Juicy Couture, and their kiddies rehab. But those lines of credit have to be running out, right?

</blockquote>
Several months back I did a what if... instead of selling, what if I just tap the equity and bank it...



Take a home I looked at a home that I knew was bought in the late 90s for around $400K. Other homes in the area were a million plus, most in the $1.1 to $1.3 range.



If the owner refi'd and used a friendly appraisal, they could probably have gotten it tap for $1.4M pulling a cool million out. Tax free.



They party, blow half of it, say $500,000. But that still leaves them with $500,000 right? How long does it last? With no more money of their own, they have five years worth of payments. That's if they didn't Option ARM, if they option ARMd, they probably have 3 years of easy payments from their pocket and then enough money to pay the spiked payment for four more years. That's assuming they don't make any gains on the capital and that they blow half. That's assuming they didn't reinvest in RE and HELOC their investments getting even more free money.



To me, that's the wild card, for the higher end properties, the amount of equity extraction that was possible is staggering, right down to the point of pulling the capital out literally gave you enough money to pay the bigger mortgage for the next ten+ years if you didn't squander it.



If they banked the whole thing paying 7% mortgage interest and average 8% earnings on the Capital, they have 15 plus years of payments, without putting any of their own money back in. If they option ARM and make minimums or did IOs or ARMs, maybe longer.



Ten years, fifteen years? Heck worry about that in 2016.



[quote author="SacRenter" date=1217900408]

Surely it would only take one or two distressed homeowners to ruin the values for everyone inside the guarded compound. I have to believe the next 6 months will show significant loses in the upper end...but I've been saying that for a year now and I haven't been right yet. There are entire communities of custom builds in N.Coast that had 4 or 5 fold appreciation during the bubble. Shouldn't there be a few listings that if they sell result in a million dollar loss or more? Again - I don't have access to HELOC info so maybe they're there I'm just missing them. If you've seen them please post them.</blockquote>


I don't think so, housing in general is more resilent than that. I agree it'll fold eventually, if not this winter, next winter. One or two won't do it. It needs to be a steady stream of 10% of the sales volume. And enough have to foreclose, resell, short sell and be aged enough that they can show up and be included as comparables. This to me is the news about the REO sales in Irvine increasing that is really bad news for the market. REOs have taken over and now REOs are going to be in the comps for future sales. REOs will be comps for future REOs and future sales.



As for the million dollar losses, we've seen them here and on Bubble Tracking. But frankly, they are rare. They have to go back to the bank and nobody to date has been willing to eat that loss unless forced.
 
[quote author="awgee" date=1217904624]I would not count on too many $3 mil loans going underwater any time soon. Lendingmaestro may disagree with me on this, but coming from a tax backround, it is my experience that my wealthier clients own their homes outright. Mortgage interest is only deductible to a maximum of $1,100,000 in first and HELOC loan amounts, and for most taxpayers, it is less, even if they have a higher mortgage.</blockquote>


Generally, I agree with you. That said, there are portions of the housing stock (although maybe not the uber premier housing stock that Cheeky was talking about), that were purchased by (1) people who are no longer employed in the mortgage industry, (2) individual specu-vestors, and (3) groups of specu-vestors. If those three groups comprised only 10% of the high end ownership, I would suggest that they will impact the selling price of "high end" homes.



If Cheeky is a long time reader of these forums, I'm not really sure why he/she would have expected prices to fall dramatically at the high end by now, only because many people here complain that SFRs in Irvine (which is subject to much more pressure) have not fallen very much. I do not believe that the high end is immune. I do believe that it runs on a different schedule from properties in the ghetto.
 
[quote author="awgee" date=1217904624]I would not count on too many $3 mil loans going underwater any time soon. Lendingmaestro may disagree with me on this, but coming from a tax backround, it is my experience that my wealthier clients own their homes outright. Mortgage interest is only deductible to a maximum of $1,100,000 in first and HELOC loan amounts, and for most taxpayers, it is less, even if they have a higher mortgage.</blockquote>


Agreed. You just won't see that many foreclosures/bank owned homes in these areas. Obviously prices will go down with the market, but if you're looking for a "blood bath" of foreclosed homes--you should look in other neighborhoods. For the most part, the people that live in these houses CAN afford them. Imagine that?! Most of the residents in the areas you speak of are not over extended 30K millionaires like you see in other areas...
 
I used to "sell" homes in Laguna Beach during the peak. Actually, I just showed them, hence the term "Failedagent". Nonetheless, I do know something about the ultra prime market. First, there will be a "crash" in high end properties in Laguna. According to my high end successful realtor friends, it is already happening. My experince in the Palo Alto and Los Altos Hills areas in 2000 showed that these ultra prime properties are very suceptible to things that affect stock prices and stock options. These sorts of homes can only be purchased with large cash assets and stock options are the very easiest to find. When the options stop, the prices can crash hard, like homes selling for 25% of peak price. Not to many options will be cashing in from the mortgage moguls next year. Next we have the "Oh My God look how expensive this house is to maintain". Mega houses seem to cost a larger proportion of the purchase price to maintain, and people who buy with stock options can't necessarily support the long term cash flow requirements. Finally, comes divorce which probably accounts for 50% of all mega house turnover. You will be seeing more of these in the upper income brackets just because of the demographics of the newly rich. Start looking for people to finally admit Laguna prices are falling early next year, with a 30% drop next summer as people who NEED to sell finally have to give up and price to sell.
 
Okay. Failedagent's comment makes sense. I will keep an eye on things from afar while planning for next summer. My original point stands that I should have bought in the area in 2006.. there has been a significant run-up since then. It would would be a pity to wait 3-5 years only to have things "crash" right back to the "crazy" prices of 2006. A lot of waiting for nothing if you get what I mean.
 
[quote author="no_vaseline" date=1217976724]And once again, we see why Failedagent is my fav newbie poster here.



Thank you for the insight.</blockquote>


The humility is not only funny, but also endearing.
 
[quote author="awgee" date=1218072934][quote author="no_vaseline" date=1217976724]And once again, we see why Failedagent is my fav newbie poster here.



Thank you for the insight.</blockquote>


The humility is not only funny, but also endearing.</blockquote>


Not to mention witty and well written.



Butt kissing time over. Lets go write something about government spending or tax policy or commidities or why checking your tire pressure is a bad idea.
 
[quote author="chaiki" date=1218068651]Okay. Failedagent's comment makes sense. I will keep an eye on things from afar while planning for next summer. My original point stands that I should have bought in the area in 2006.. there has been a significant run-up since then. It would would be a pity to wait 3-5 years only to have things "crash" right back to the "crazy" prices of 2006. A lot of waiting for nothing if you get what I mean.</blockquote>


I think you are dilluding yourself on the appreciation YOY.



There are few properties trading hands in those zipcodes and the median price doesn't mean much because if a couple of big dollar properties switch ownership and nothing else moves.............it skews the numbers.



For a while between now and 2006 I trolled the slums of Newport looking for the worst homes in the nicest neighborhoods. I never saw asking prices spike, and if they did, they certainly didn't move.
 
To me its the old Quality/Cost/Location equation.



You want VERY high quality and location, cost is by the very nature of having something very nice and in a very good location, going to be very expensive. While it probably won't crash as fast as something "normal", the price will come down. As stated before these homes aren't bought with the normal purchasers thought processes.



Ergo, they won't follow the normal pattern. Anyway, good luck and I hope things go well for you



-bix
 
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