You can’t afford it here either
Stanton. Beautiful, beautiful Stanton. Home of Venus’ live nude ladies, “theaters” that feature bruised, hollow-eyed girls waving their clean-plucked naughty bits in the air, and a plethora of pawn shops where I like to do my Christmas shopping.
Stanton is the place the rest of us here in Orange County make fun of when we’re tired of mocking Fontana.
Stanton—let’s face it—is a nasty, stinking hole, and therefore the perfect place for your first-time home-buying needs.
Some time ago, while working at a local paper, I received a letter from a frustrated reader. It read, in part, “Would someone please do a story on the housing crisis in Orange County!
“I would very much like to hear about how people in their late 20s-40s are dealing with the situation. I am college-educated, 35 years old, with a good job, and married with a combined income of about $100K, and we can’t afford a home and refuse to pay $485,000 plus association fees for a two-bedroom apartment (condo). This basically pertains to anyone who is not poor enough and not rich enough to enter the housing market . . . what used to be middle class has been squeezed out.”
Being “poor enough” won’t help you either, of course, until Jimmy Carter comes to town. But that’s an affordable housing crisis story for another day.
My editor, naturally, thought this young couple’s letter was a grand idea for an article. “How could someone like you,” he asked, “who earns the county’s median household income, but who owns no actual money as such, buy a house?” He wanted real, creative solutions, he said, not snotty commentary.
I tried to argue: this market is going to crash, I said, probably no later than 2007 (when the first wave of interest-only loans’ balloon payments come due), and all those people who have interest-only loans—one-third of the loans that were opened last year were interest-only—are going to suck it, which is the scientific term. You know when the last time was that interest-only loans were as popular as they’ve been in the past two years? In the 1920s, so there’s a little food for thought.
I continued, screechily: interest-only loans stop being interest-only after two to five years, and if the housing market hasn’t appreciated even more in that period, you can’t re-fi the balance and we’ll have mass defaults and foreclosures. (If a median-income gal like me tries for a 30-year fixed, she’s looking at house payments that are more than she earns—and that’s if she has $120,000 for a down payment.) And how much more can the market appreciate? Houses that are going for $650,000 today (and they’re not even particularly nice, really) sold for $190,000 just seven years ago. Eventually, you’re going to run out of people who can afford to pay $1 million for a three-bedroom Costa Mesa ranch house, since I’m not sure how many Saudi sheiks are interested in cornering the Costa Mesa ranch house market.
But my editor wore me down—he always does—and I opened my mind and agreed to investigate. He reminded me how much I’d wanted a house when my landlord sold mine a year ago. And I started to think about the amount of cocktail chatter I expend on real estate, when all the talk used to be of sex. And I thought some more about this housing market, and what I might have to say. Really, I don’t know how my editor does it.
How could someone like me buy a house/condo/cardboard box? Real solutions? Not snotty commentary? No problem.
And did he want a unicorn with that?
Perhaps you’ve read that Orange County’s median home price (that means the price at which half the houses sell for less and half sell for more, in case you never finished high school) has risen to $618,000. Perhaps you also read that only 16 percent of us can afford a home in this market. Perhaps you also also read (since it was just a couple of paragraphs ago) that I earn the county’s median household income. Even all on my lonesome, I’m in the right-dead-middle of the middle class. But I don’t like to brag.
I put off the story as long as I could, because it was depressing me and I hate you, each and every one. But I finally pulled myself out of my pit and decided to keep my promise. I’d find a miserable fixer-upper in a miserable neighborhood. I’d get over my elitist disdain for condos and townhomes and just accept that there would be no gracious, grassy yard for my boy and his big, romping dog. I’d find a guy who could give me the most ridiculous, even predatory, negative-money-down loan in existence.
What’s out there? A sampling from my travels:
A dark but good-sized home in an Anaheim neighborhood where every house was landscaped in weeds—definitely a fixer-upper, since the doors all seemed to sport Bondo—is offered for $550. (Thousand. From now on, just assume there’s a thousand written after every figure, unless I specify that we’re in the millions now.) It did, though, have a nice yard. An upstairs condo in a shitty part of Garden Grove, three bedrooms, two baths, and overlooking alleys and the neighbors’ wash lines, was listed at $449. The unit below it—one bedroom, maybe 700 square feet, and smelling of pee—was going for the fire-sale price of $345. At that price, my payments (interest only!) would be $2,298 a month—until those interest rates went up, of course, and don’t you think they won’t.
I’d find something, goddamn it, and I’d find it in Stanton, home of the very, very free. But on a recent comprehensive trek through available properties there, the most affordable I could find was a townhome, 1,100 square feet crammed into two dark, narrow stories, on a concrete-slab lot, for $410,000.
And I couldn’t come close to affording that either. The couple who wrote us that letter, the couple that pulls in a sweet hundred grand a year? They could buy it, but their payments would be approximately $3,000 a month—for the privilege of owning their dark, gloomy, narrow townhome—in Stanton—and that’s if they use one of those “exotic” loans that are causing Federal Reserve chairman Alan Greenspan such acid reflux, where they would be paying interest-only for five years at a fixed rate, after which their interest rates would adjust every six months and then in 10 years it would reamortize so they were paying principal as well, and if interest rates went up even just one little point in the next five years, their payments would hop to $4,316. A month.
But it’s strip-club-convenient!
But enough about that other couple, livin’ large on their pretty concrete-slab patio: What about me?
I had Gene Burd at New West run my numbers for me. He figures that no more than 40 percent of your income should go to mortgage payments.
“Forty percent of your gross income would be $1,648 a month,” he told me. “You qualify for a storage unit.”
Well, that would be a creative solution!
Burd seemed like a swell guy. I’d met him at an open house for a sprawling five-bedroom in Stanton, desperately in need of updating, that was listed for $649,000. Two months ago, a smaller house across the street sold for $630,000, but this listing wasn’t even getting lookie-loos.
“This market’s almost done, Rebecca,” he told me frankly. “It can’t go much further.” But what about all those people who said the market might stagnate, but California real estate never crashes?
Yeah, Burd said, that’s what they said back in ’89. And by the end of that year, he no longer had two offices with almost 70 full-time agents. If you can weather that kind of downturn because you’re planning to stay in your house for the next 40 years, and you don’t have any balloon payments coming due at just the time the market’s dropped, that might be fine. But if you’re counting on this tulip craze continuing, just remember: a house can’t quadruple in value every five years indefinitely. If it did, that would mean in five years, our Stanton townhome, already beyond the reach of almost everyone in the county, would be worth $1.6 million. And do you really think that’s going to happen?
Burd did have some good advice for me, though: he told me I should get married. “Find a rich old guy who won’t live that long,” he said sunnily. “You’re a good-looking girl!”
We had now moved from exotic to erotic financing.
I clearly needed someone with loans that were a little more “exotic,” so I called Gavin Fenske, president of Great Financial Mortgage in Fullerton. I’d read an article in Newsweek on the scourge of “negative-amortization” loans, and Fenske was their negative-amortization-loan go-to guy. The whole thing sounded shady to me. Sign me up!
With negative amortization, you’re not only paying interest-only—you’re not even paying all your interest every month. So the amount you owe grows with time.
That sounded perfect.
Fenske got back to me within minutes of my message. I gave him my stats and lied and said I had excellent credit. “I can qualify you for $350, which is not going to get you a home in Southern California,” he said, clearly unaware of the one-bedroom place that smelled like pee. “But with excellent credit, I can qualify you for $450.”
I explained I could scrape together a $20,000 down payment: I bought stocks after 9/11, wanting to be patriotic, and those have quintupled to about $5,000. I have another $5,000 in my IRA. And, hypothetically, I could get my 10 dearest friends to loan me $1,000 each. “Twenty thousand might pay your closing costs,” he said. So I couldn’t even qualify for those risky negative-amortization loans, because you need 5 percent down to be eligible.
“Here’s the thing,” Fenske told me. “The whole logic for buying at these prices only makes sense if things continue the way they’re going. You can get an interest-only loan and say, ‘I don’t care about paying $300 or $400 a month in principal, because my house just went up $10 grand.’ But at some point, to me, that won’t make sense either, because at some point the buyer pool will shrink. Prices will steady or drop; it’s got to happen. Yeah, I want to do loans just like everyone else, and I want to stay in business, but I also want to sleep at night. I can qualify you for a lot on paper, but are you going to be comfortable with the payment?”
No! I won’t! That pee-smelling one-bedroom just took all my take-home pay! And since my son would be in the bedroom—a young man needs his privacy—I’d be even less comfortable since I’d be sleeping on the couch!
So what could I get then, Fenske? What should I do?
“You might get something—a one-bedroom—in Stanton, but I don’t know if you’d want to go jogging in the evening,” he said.
Don’t he know sexy Stanton’s in the $400s now?
“I’m not doing anything in OC unless a client sold a house and is moving up,” Fenske continued. “I just did a loan, though, for a client in Fontana, for $385.”
And so Fontana’s out now too.
But it’s as easy to love a rich man as a poor one.