Sunday, December 18, 2005

Housing ATM

So you hear about the "housing ATM" and people putting "their money" into vacations, Hummers, huge flat-panel TVs, other toys and sometimes, every once and a while, prudently back into their houses or their kid's education (although the current issue of Business Week [print edition, p. 120] argues that putting money into things like granite counter tops, high-end appliances, new kitchens, etc. are not investments per se, but rather they are "lifestyle upgrades" which quickly go out of style and rapidly depreciate). Well, here is a story in the SacBee about a couple that took out $100,000 in equity (which of course got rolled back into their mortgage) in order to do what? Pay for an über backyard entertainment "complex". How common is this I wonder? Does anyone have any stories of people who have done something like the Arnolds?

Some choice quotes:
During baseball season, Bill Arnold sometimes watches his beloved Dodgers from a private luxury box: the backyard of his Rocklin home. Covered patio, 32-inch television, beer tap, grill and swimming pool - all paid for by borrowing $100,000 against his ever-increasing home equity.

"We continue to be amazed about the value of our house," Arnold says. Three years ago they paid $460,000. A recent appraisal came in at $780,000. Sitting on a gold mine, the Arnolds decided a year ago to build a backyard entertainment complex. Jan, a tech consultant, was nervous about borrowing $100,000 against their equity, but Bill said it was a no-brainer.

It seems everyone in Arnold's Coppervale Ridge subdivision has a stake in the great American real estate boom. It's made them wealthier. It's created jobs. It provided security when big employers downsized.

But that dependence, some say, is a problem in the making.

The economy has been relying on real estate to an extent rarely seen, coasting on an intoxicating wave of rising prices and nonstop construction.

Now the boom is fading. "When you scratch the surface about this recovery we're in right now, it doesn't look very pretty," said Chris Thornberg, who tracks the California economy for the UCLA Anderson Forecast. "We're in an economy that's being driven by this real estate bubble. ... I'm not saying it's going to collapse around our ears, but we definitely have this issue."

Statewide, the real estate sector created 40 percent of all new jobs last year. The year before, real estate created 40,000 jobs while the rest of the economy lost 105,000 jobs.

Nationally, the real estate sector generated 465,000 new jobs from 2001 to 2004, according to consulting firm The rest of the economy lost 821,000 jobs.


Anonymous Anonymous said...

The following story that appeared in Sunday's Sacramento Bee is more entertaining:

Dec 18, 2005, 1:48:00 PM  
Anonymous Anonymous said...

"If I had known a year later that there would be a million homes listed, I might not have bought," said Lynette Wall, a real estate agent who helped her husband buy an $809,000 home on Woodhaven.

Now, facing a $6,000 monthly payment on a vacant house, they've put it up for sale. But there are no illusions about a big payoff; she says they're hoping to make "a little bit of money."

A wintry chill has descended on the Sacramento housing market. Sales have slowed, cancellations of new-home purchases have soared, and prices in some areas are edging downward - signaling the end of an epic housing boom

Experts aren't sure how much the market will weaken, but most say the region is experiencing something beyond a seasonal lull.

And then

Still, most experts don't see Sacramento crashing. They predict a soft landing in which prices stagnate or decline modestly for a while, and then increase slightly over the next year or two.

Unbelievable. Pump and dump and then CYA.

Dec 18, 2005, 1:54:00 PM  
Blogger sf jack said...

Reading these gives me the idea that these people are aliens - as in "from another planet."

Especially after seeing the table - can anyone believe this many not end in big declines in Sacramento or in its environs (Davis, Auburn, etc.)? Anyone?

Many financially conservative (about their individual situation) state government workers up there should be able to buy houses at "great deal" prices in the years ahead.

Three? Five? Seven years? Who knows?

Dec 18, 2005, 6:36:00 PM  
Blogger BROMEO said...

Sacramento sucks, and its been pretty obvious that the whole pow-dunk Central Valley has a massive RE bubble. I can not believe it when I hear about $780K house prices in SACRAMENTO?! That doesn't make sense, and the economic development out here since then has come in the form of your garden vareity big-box retailers and strip malls.

Dec 18, 2005, 10:27:00 PM  
Anonymous Anonymous said...

Although I consider myself a "good person" I cannot help but wish ill on those consumers that have played their part in this whole thing, from rising prices to loose lending standards, etc. The "herd mentality" is hard at work here and demonstrates how evolution has not interceded in the last 10,000 years or so of the human species. When a job change moved us to central Marin in the mid-90's for what was to be a "temporary" assignment, we could qualify for about a $350K house, which of course would not put us in a SFR.

Had we thrown caution to the wind of course, we would have bought a $500K house and refinanced several times, bringing down our monthly payment in the years since. This decision has impacted my family and brought on a great deal of resentment on my part, so I am not a pleasant person to be with at a gathering when the topic is brought up by our "landed" friends (which it always seems to do). Ahhh...retrospect. And some reward for the "virtue" of financial restraint!

Dec 19, 2005, 12:50:00 PM  
Anonymous Anonymous said...

anonymous -

I am with you. Look at what's happening now:

Prudent home buyers are run over by reckless gamblers.

Poker game shows are the hottest on the TV.

Las Vegas is the top tourist stop.

We are becoming a casino nation.

Dec 20, 2005, 6:19:00 AM  
Blogger Unknown said...

From day by day people is look like atm machine, they focus on how to get money and spent it without thinking the future

Real Estate Professional

Oct 2, 2009, 12:10:00 AM  

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