[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?
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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.