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TOURBUS Volume 13, Number 19 — 21 Feb 2008
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Stories from the frontline of the US housing meltdown
In October 2005, KABC television (Los Angeles) consumer reporter Ric Romero reported on a new Internet phenomenon called “blogging.”
Unfortunately for Romero, blogging wasn’t even remotely new in 2005– BoingBoing [at http://boingboing.net/%5D launched its blog in 2000 and John Walkenbach launched his J-Walk blog [at http://j-walkblog.com/%5D in 2002. Thanks to the kind folks at Fark.com, Romero quickly became the Internet’s poster child for ‘captain obvious,’ someone who “[r]eports the obvious, usually long after everyone else knows it’s Obvious.” [source: http://www.fark.com/farq/farkisms.shtml#Ric_Romero%5D
Case in point: if I were to don my Ric Romero reporting hat and tell you that there has been a recent downturn in the United States’
housing market, you would most likely respond by inviting me to purchase my clues in a higher quality clue store. But if I were to tell you that I think there is more to the housing story than the local Ric Romeros have been reporting, you may be interested enough to keep reading for a few more paragraphs.
A few weeks ago, the CBS news magazine 60 Minutes aired a story on “how the U.S. sub-prime mortgage meltdown, in which risky loans drove a housing boom that went bust, is now roiling capital markets worldwide.” You can watch the video online at
The part of the story that focuses on the Fontinau family [at about the 7:30 mark] is particularly heartbreaking because it vividly depicts the problem at the heart of the sub-prime mortgage market
correction: people purchased, or were induced to purchase, houses they can no longer afford.
But jump ahead to 8:40 and you’ll see what I consider to be an even scarier problem that the mainstream media, even CBS, seems to miss.
The Valdez family purchased a house in Stockton they *could* afford, their mortgage payments increased to a level that the family could
*still* afford, but the house is now worth less than the Valdez family owes. The Valdez family is now considering walking away from the house and leaving the bank holding the debt.
I may be misreading the situation here, but the Valdez family’s situation doesn’t seem to be indicative of a meltdown in the *sub-
prime* market. Rather, it hints at a larger problem in the PRIME housing market: people with good credit and prime loans are considering defaulting on their mortgages not because they can no longer afford the payments but rather because they see no benefit in continuing to pay X for a house that is now worth 1/X. You don’t need to be an economist (or Ric Romero) to see that that is bad on many different levels.
For a perfect example of a town smack dab in the middle of the combined sub-prime and prime housing meltdowns, look no further than my beloved hometown of Irvine, California–a large, semi-aquatic, mostly plant-eating, African mammal. In July 2007, Slate.com announced that “America’s most reckless real estate investors come from Irvine, Calif.” You can read Daniel Gross’ commentary on Irvine
For even more shocking examples, check out the Irvine Housing Blog at
which proudly chronicles “the seventh circle of real estate hell.” A typical post starts with a 1970’s stadium rock song’s lyrics, a link to a YouTube video of that song, and then the fun stuff: the real estate listing of an Irvine home or condo followed by some snarky comments explaining how *incredibly* out of whack this listing’s price and financial history is. As you read through the irvinehousingblog’s posts, you’ll see homeowners who used their homes as automatic teller machines, withdrawing hundreds of thousands of dollars each year as the housing bubble expanded. You’ll also discover that Irvine sellers (who are often foreclosing lenders) are now frequently losing $100,000 or more on each house sale.
I introduced my wife to the irvinehousingblog recently, and for about an hour or so was treated to her exclamations of “oh, my!” and “no!”
as she reacted to the carnage chronicled in the blog’s posts. I know that schadenfreude (pleasure from the misfortunes of others) is unbecoming, but I also know that Christine and I are thankful that we don’t own a house in Irvine–we rent an apartment instead. Stockton, CA, may be getting everyone’s attention, but I think the real story is here in Irvine. Irvine’s housing market is horrible, getting horrible-er [I are a college student!] each day, and will ultimately take down several financial institutions (at $100K at pop) before the market bottoms out.
Oh, and for all the kidding I’ve given Ric Romero in today’s post, I should add that he’s ten times the journalist I’ll ever be.
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Patrick Douglas Crispen