Q: For people who made $ off the great housing bubble

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roundcorners_IHB

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This question has been bugging me for quite some time now...



I seem to always be asking questions that don't really get adequate answers, and this may be one of them.



We see the many, many postings IrvineRenter profiles from day to day; now we all assume that these people who take out HELOCS and ReFi's spent that bubble money. Granted that is fair to assume; but chances are not every did. Now most of us housing bears on the IHB who were not stupid enough to jump in during the boom haven been patiently waiting to for years now for things to return to normal, and I assume most of us didn't get rich off the bubble; BUT I'm guessing a lot did!



A lot of wealth was created, all those losses from the banks, the equities markets, hedge funds, Wall Street firms, investment banks, went somewhere! Yeah, most were probably spent on consumable goods, most probably just burned up, evaporated in depreciation, but how much is left, saved and was wisely invested or rescued?



I guess that is my question and I'm guessing it's an economical one; how much of that bubble money is holding up the economy? How many people got rich off the housing bubble, say made $100k or more! I'm guessing say, 1/4 of the people who participated in the bubble made out handsomely; yeah a lot of people got burned but I'm almost positive that a few minority even here on the IHB, took a risk, didn?t get too greedy, got lucky, cashed out and are waiting just like us who earned $ the old fashion way...
 
We cashed out, but I think it is a mischaracterization to call it getting lucky. There may have been a bit of luck involved, but I think it is the kind of luck that is actually "working hard to provide opportunity". And investing one's money is no cakewalk. I expect our investments to payoff well, and their is no luck involved.


Most of the "wealth" you speak of did not go anyplace. It disappeared into thin air, the same way it was created. That is why the banks are having problems. They have liabilities on their balance sheets, and the opposing assets are now less than their liabilities. Oops.
 
My stylist is a nice example of someone who rode the wave well. He and his wife started with a condo in RSM back in '98 and every two years from then until May '05, they bought up in Irvine. They amassed somewhere around $800K and got a steal of a deal on their dream home in Yorba Linda.
 
One of my neighbors, bought a detached Irvine condo in July 2001, then sold 2 years later in August 2003 pocketing $250K tax free cash, then gambled again by putting the profits on a new Irvine house, only this time sold in August 2005 for $300K more. So total haul $550K before 15% taxes on $50K . But the best part, the cash was not rolled over to another Irvine property but GLD on August 19th for ~ $42/share. Talk about timing the market perfectly!
 
Tim, this is his question: <em>"but how much is left, saved and was wisely invested or rescued?" </em>



I cashed out and 6 months later plunked the majority of the proceeds into a house on the East Coast. The value has held up much better than here, but I've still lost a bit "on paper", maybe 40K or so.
 
The national savings rate is zero, nada, zilch. Most of it was consumed. The people who saved or invested the wealth that they made on this bubble are nullified by all those that spent it on things that either do not exist anymore or on depreciating assets. Where is the cumulative amount of it? Gone. Welcome to America.
 
[quote author="Trooper" date=1216891718]Tim, this is his question: <em>"but how much is left, saved and was wisely invested or rescued?" </em>

</blockquote>


Yeah, I couldn't tell if he wanted to know about anyone who made money on the bubble or only those who used some form of HELOC abuse or something.
 
[quote author="roundcorners" date=1216853157]

I guess that is my question and I'm guessing it's an economical one; how much of that bubble money is holding up the economy? ...</blockquote>


The operative word you're looking for is MEW. Mortgage Equity Withdrawal. It's been covered a lot, but search is useless for finding it. Here's a link to <a href="http://calculatedrisk.blogspot.com/2008/01/advance-q4-mew-estimate.html">Calculated Risk</a> showing the Q4 2007 numbers. You may find a more recent one. But in a nutshell, lots. As in 5.6% of disposable income. As another pointed out, the effective savings rates is negative, people have been spending more than they made by about 2% a year (I think).



IrvineRenter also touch on a similar item in the first comment on the blog post <a href="http://www.irvinehousingblog.com/blog/comments/a-brief-history-of-kool-aid/">A Brief History of Koolaid</a>. In it you see the revised Option ARM reset schedule, caused by people using the minimum payment and maxing out their housing ATM credit line. To the best of my knowledge, MEW has also been covered, although I can't find it at the moment.
 
I made money by purchasing home and then renting them. About 1-2 a year. Then i'd cash out and take what little equity I had and move up to the next. By 2005 I knew rates and prices were becomming unsustainable and got out. I had rode the housing boom from 1995 to 2005. I didn't make HUGE money, but i did make enough to afford a small set of apartments. And the rest I moved on from threre.

good luck

-bix
 
A lot of people spent the money on cruises and the like.



Within the last couple of weeks I heard a bank ad to heloc

your house & go on a cruise. They are insane.



By the way, lending maestro hasn't been heard from for a while, has he?
 
[quote author="lawyerliz" date=1217056780]A lot of people spent the money on cruises and the like.



Within the last couple of weeks I heard a bank ad to heloc

your house & go on a cruise. They are insane.



By the way, lending maestro hasn't been heard from for a while, has he?</blockquote>


Maybe he's on a cruise :)
 
The IPO family story is well-documented. Bought in '01, put around $15K into the place over the years, and will sneak out after escrow closes with net gain of around $210K.



On top of that gain, our monthly housing expense has been considerably below rental equivalent since we purchased, especially so for the past five years thanks to a 5/1 3.75% ARM taken out in 2003, so we have "saved" vs. renting perhaps another $80-100K.



So, the housing bubble has increased our net worth by $300K or so vs. the scenario of sitting it out all these years in a rental. That $300K, along with an extra hundy, will stay in cash just waiting for prices to fall another 20%... I'll be happy to pay $700K for a home that cost $1-1.1M at bubble's peak down the line as that will mean my mortgage will be only $350K or so after improvements.
 
I Bought in 2001 for 250K, sold in 2004 for 500K. I bought the new place for way too much (oh well) and put the 250K profit back in to the new house. I took out 200K on a rental property in 2006 and invested in commodity options and futures. Although taking the equity out of the apartments was risky, it seems to be paying off (and it's probably not something I'd be able to do now!).
 
We bought a new house in Aliso Viejo in late 1999 for $280k. We used a zero-down, 30-yr fixed loan. After that, interest rates kept going down. So, we refinanced almost every year, and somewhere along the lines had the house appraised high enough that we got rid of PMI. We always got 30-yr fixed loans and never took any equity out of the house. We sold in Spring 2006 for over $630k. With the money we "made" from this, we paid off a car loan. We bought another house in another state for $485k and had a mortgage of about $200k. We kept out some money to use to redo this house. We ended up putting $30k-40k into the house. We sold that house for $500k (a slight loss) and moved back to SoCal in late 2007. Since my company paid to relocate us both times we moved, we didn't pay a realtor commission either time. We now have a bunch of money in CDs in a couple different banks. We have some of it set aside to pay for my wife's Masters degree. If I hadn't found this blog before our return here, we probably would have bought something in OC and lost a LOT of money.



Overall, I would say we were somewhat smart and somewhat lucky. When we bought and sold was luck. Not pulling money out of the house to spend was smart. Actually, even that had some luck in that those with whom we refi'd didn't encourage us to pull equity out.
 
[quote author="T!m" date=1217461625]<strong>If I hadn't found this blog before our return here, we probably would have bought something in OC and lost a LOT of money.</strong>



Overall, I would say we were somewhat smart and somewhat lucky. When we bought and sold was luck. Not pulling money out of the house to spend was smart. Actually, even that had some luck in that those with whom we refi'd didn't encourage us to pull equity out.</blockquote>


I have said before that I do not like being a pessimist, seriously I don't. But, when I read comments like that it makes me smile to know that despite being called bitter renting pollyanna chicken littles for so long... the time, effort, rants, and extensive research that myself and many others here have posted has really paid off. I'm thankful that people like T!m were not only smart and lucky enough to make some money during the bubble, but also smart and lucky enough to find IHB and save money during the bust of the bubble. I can't wait to hear about T!m's next purchase and how much he saved had he bought it before he found IHB.
 
From 1999-2002 I bought 3 condos (all 30 year fixed rate, 5% down), then sold 2 by 2006. Had I cashed out in 2005, I'd have made more, but I'm not good enough to time the market perfectly.



In late 2006 I had a condo in Placentia on the market. It was difficult to sell, until a wealthy gentlemen from Newport came along and made an offer at 50k below asking, cash purchase. I suspect he was doing a 1031 exchange or something. He was buying for his daughter, and his daughter was cute, so I gave them the keys and they gave me a bag of money. Then I gave the bag of money to Vanguard funds.



$_$
 
[quote author="momopi" date=1217468120]From 1999-2002 I bought 3 condos (all 30 year fixed rate, 5% down), then sold 2 by 2006. Had I cashed out in 2005, I'd have made more, but I'm not good enough to time the market perfectly.



In late 2006 I had a condo in Placentia on the market. It was difficult to sell, until a wealthy gentlemen from Newport came along and made an offer at 50k below asking, cash purchase. I suspect he was doing a 1031 exchange or something. He was buying for his daughter, and his <strong>daughter was cute</strong>, so I gave them the keys and they gave me a bag of money. Then I gave the bag of money to Vanguard funds.



$_$</blockquote>


<em>Note to self: remember to send Mrs. IR2 dressed to the nines with any future low-ball offers, armed with the "charming daughter" story.</em>
 
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