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The bad news is they've had to cut their price to $563,000 – $226,000 below their original asking price and $140,000 less than what they paid for the three-bedroom ranch house.
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Laguna Hills resident Paul Beyer has a different story, but a similar result. After trying for 1 ½ years to sell his Mediterranean-style house beside a bridle path in Nellie Gail, he's cut his $2.09 million price by $600,000, and still hasn't had a single written offer.
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Sometimes, the Mrs. and I watch Flip This House just to see what others get themselves into. Since we have a good deal of experience with planning, contracting, and doing the work of major home improvements, it's more of a comedy show than anything serious to us. Their grandiose plans at the beginning of the project generally have no basis in reality, neither do the real estate agents' appraisals of it after the job is done.
The impression I get from the show is that most people who were looking to make a killing in real estate bought anything they could get their hands on, believing they could make a minimal investment and get high returns. Unfortunately, with the availability of easy credit, many folks fell into the trap.
The 'housing bubble', just like the 'dotcom bubble', was an artificial construction, brought into existence by an unregulated credit industry. Just as any internet company could get capital financing at the height of the frenzy, so could unqualified borrowers suddenly afford far more than their budgets would allow:
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They put $70,000 down – all that remained from their $180,000 profit from the Las Flores house after taxes and paying off debts. They were able to afford the home by using two interest-only loans. Their house payment was $3,300 a month, but would reset to more than $5,000 after three years – more than they could afford.
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What people should have learned from the 'dotcom bubble' was that such artificial constructions (brought about by investment firms looking for a new angle with which to peddle their wares) do not last and consequences (how many 'day traders' lost their shirts?) are difficult (if not impossible) to predict 3 years out. This crash was coming. Many people (including yours truly) predicted it years ago, when all the folks who were supposed to know better did nothing but say how great things are.
The subprime mess won't get fixed by a 'stimulus package' from Washington. Things are too far gone for an $800 check to fix. I'd wager most folks will use it to pay bills that are, or are pretty close to, delinquent. Nothing good will come of the economy until the price of daily living comes down.
Until the price of gas and heating oil comes down, until the vast federal expenditure on the occupation of Iraq is put to rest, and until they figure out who is going to get hurt most by the mortgage mess (most likely the middle class taxpayer), nothing will stimulate the economy. Easy credit has been the stimulus for the past five years, people spending the equity in their homes on cars and big screen TVs, the most daring getting into the real estate investment game. That well has dried up and a one-time payment of a few hundred dollars won't replace it.
We're in for tough times ahead. While you're voting for your candidates this year, make sure your choice is qualified to fix this economic mess that's going to get a lot worse before it gets better. By the time Election Day rolls around, you can bet the economy will be the number one issue concerning the electorate.
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