Buying a house? Watch out for paradigms

torgo_x forwarded the most clear and forceful explanation of how really bad mortgage ideas work, and why the current situation can’t end well. Math is hard, and optimism is easy. I’d guess a lot of the people who do this think of themselves as risk-takers who are going to win. I wish them all luck tripling their incomes in the next five years.

I wonder what the impact of a really bad housing crash would have in Orange County. Not only is real estate development a big local industry, but that whole slimy subprime mortgage business is mostly here too. So much so that we refer to big-spending young guys who party hard as “mortgage bro’s”.

If there’s no more money for the next swathe of terra cotta boxes in Temecula, and no more spiffs for selling predatory refi’s to hicks, and no more interest-only ARM crazy home loans to sell, that’s a big chunk of the local wealth just flat fucking gone. It could be as bad as the Great Defense Slump of the 1970s, which was a carnival of suicidal dads, boarded up ranch-style homes, and 40 year old draftsmen lining up for government aid and retraining programs. Oh by the way, those are gone now because we didn’t need them in the New Economy. Whoo boy.

8 thoughts on “Buying a house? Watch out for paradigms

  1. Some people I know, young people, made a ton of money with those fuzzy mortgages. I don’t understand the process but basically they buy up a bunch of houses in Arizona with no money down, wait a few months and sell them. But that’s one thing, the people who are gambling their families on this bubble are another matter.


  2. Having (sadly) worked in the martgage, real estate, architecture and now engineering worlds, I’ve been wondering about this as well. It’s going to get quite ugly in the next 3-5 years, as more and more people are forced into foreclosure. Your point about the whole classes of people who will suddenly find work scarce is also right on target – most people only think of the home owners as the people strapped to the bullseye (which they climbed onto willingly?).
    I’m curious to see if the wealthy elite of OC won’t take it as an opportunity to pick up a whole lot of property on the cheap when everything bursts. Just imagine… a whole new era of landlord driven real estate in Orange County. Yeah.


    1. Actually, that won’t work this time unless the new bankruptcy law is repealed. What will happen is whole bunch of people will be upside-down on their mortgages, and unable to get relief through bankruptcy. The “landlords” will be the owners of the mortgages, and they’ll be mostly absentee. If you’re lucky, then yours will be Chinese and not American.


      1. Heh – with the way the Yuan’s been rocketing in value over the last few days, it could be pretty likely. It’s like the 80’s all over again, with China instead of Japan.
        I love the Pacific Rim.


      2. The “Japanese taking over” phenomenon of the 1990s was mostly race fear. They never bought a significant chunk of the country. Brits and Dutch were way ahead of them the whole time. I assume a similar yellow peril freakout will take place when the Chinese buy things of sentimental value here.


      3. Hmm. I was too young at the time to really apprecaite “race fear,” but I appreciated the cultural influence… I mean, where would my appreciation for sushi and anime be if not for the cultural influence of the Japanese in that period?
        I’m just looking forward to brushing up on my tonal language skills.


      4. That’s already sorta happening. You must remember the sheer panic that rolled through the markets when Cnooc put forward the highest bid for Unocal, right? God, I loved that.
        I’m so happy to know that the best Mandarin language immersion alternative public school in the country is five residential city blocks down the hill from my house. The rest of North America will be the rice bowl for the PRC, but at least my kid will have a fighting chance at making a decent salary.


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