November 12, 2008

California Scheming

Here's part of my short story "Unreal Estate" in the November 17, 2008 issue of The American Conservative about two guys who buy an exurban McMansion as a speculative investment at the height of the Sand State mortgage bubble. The funniest parts are toward the end, which I haven't posted here. You can read the rest immediately online by signing up for a three month free trial subscription (which gets you the paper version mailed to you and access to all the articles online).

Memorial Day Weekend, 2005

"So, you kids have been engaged, like, what? Two years now?" Travis asks you. "That's great. No rush to get married, not with the market the way it is in West LA. Who can afford to marry and settle down in LA? I couldn't. Georgie Cooney can't afford to get married in LA."

While you’re trying to figure out whether Travis means actor George Clooney or boxer Gerry Cooney, he’s already onto his favorite topic, "Still, isn't it time to get a place of your own? I mean, West LA's a great place to meet somebody, but, c'mon, are you going to entrust your kids -- and I know how much my wife's little sister wants some (you know how women are, they can't keep a secret) -- to the Los Angeles United School District?"

You have this conversation, if you could call it a conversation, each time you visit your brother-in-law’s house. Travis lives out in the Santa Clarita Valley, an hour or two north of West Los Angeles. You get on the 405 at Pico Blvd., head over Sepulveda Pass, down into the San Fernando Valley, onto the 5 and up through Newhall Pass into LA County's northern exurbs.

You're sitting on Travis's deck, peering down into a canyon lined with oaks and sycamores. It's hotter out here than back in West LA, where your $1600 per month one bedroom apartment doesn't have air conditioning because it seldom gets over 82. It's hot out here, but it's not bad. There's a breeze blowing with a hint of the far-off ocean.

Travis says, "I'd be all for you staying in LA if you were an entertainment lawyer or something where you need to be working with the stars. But you manage a drug store and Emma's a nurse. People buy drugs and get sick everywhere.

"I bought this place in 2000 for $255,000," Travis says, repeating a number you know by heart now. "Here we are, five years later, and the Schmidts next door just sold their's for $810,000. So I'm up, what, five, six hundred thousand. The home equity loans have paid for some nice vacations, I'll tell you. My house is my ATM.

"I know what you're thinking," says Travis, who generally does know what you are thinking. "You're wondering why I'm the lucky bastard who turned 32 in 2000 and decided it was the right time in my life to get out of an apartment in LA and buy a house back when houses in California were cheap. Meanwhile, you're 32 in 2005, when they're expensive. Well, they seemed expensive then, too. But I took the plunge anyway.

"I also know you're thinking you don't have $810,000. Who does? That's what they got mortgages for. And you're good with numbers so you've already figured out what a 20 percent down payment on $810,000 is. It's, like … a lot.

"Okay, coupla things you need to bear in mind.

"First, Emma's told me about how your dad always talks about the years saving up for the 20 percent down payment he made when he got that 30 year fixed rate mortgage on his little place in Sherman Oaks. That's ancient history. Dude, nobody puts down 20 percent down anymore, no matter how iffy they seem.”

Travis’s voice goes up a third of an octave. When he’s talking about the Lakers or whatever, he’s laidback. But when he gets going on real estate, which is more and more often over the last couple of years, he lets his inner Dennis Hopper out.

“These days, somebody arrives in California from Gautelombia and wants to buy a house, do you think they make him document his credit history? It's in Spanish, and who knows how many million pesetas were worth a dollar in 1985, and besides, the courthouse in El Carrumbo collapsed in an earthquake anyway, so he doesn't have a paper trail. Documents? He's undocumented. He don't need no steenking documents! He just pays some extra points on his rate, but that's all on the backend. Everybody's happy.

“Don’t you watch the news? The President says down payments are un-American because they keep minorities from buying houses. But you don’t have to be diverse to get a zero down loan. IndyMan is happy to hand them out to everybody.

"Second thing, Santa Clarita seemed like a long way out when I moved from Venice in 2000. So, maybe you got to move a little farther, like out to Palmdale, Lancaster. Antelope Valley's the new Santa Clarita!"

You're not quite sure how it happens, but ten minutes later, you're standing on his driveway admiring the rims on Travis's Lexus SUV, which are bigger than the tires on your Corolla. Soon, you're rolling northeast on the 14, past the slanting Vasquez Rocks where, according to Travis, lots of Westerns were filmed, but you only remember them from "Bill and Ted's Bogus Journey." The highway turns north away from the mountains through the high desert. ...

Once off the highway, you see at least one person on every corner twirling or jiggling a giant arrow pointing to an open house. "Human signs," nods Travis. "Like back in the Depression when guys would walk around wearing sandwich boards reading 'Eat at Joe's.' But this is the opposite of a depression. Real estate commissions are six percent, so, on a $400k house, that's $20k, which pays for a lot of twirling."

Stretching off to the horizon are half-built houses and recently finished ones. Eventually, you follow one particularly active arrow to the Cypress Creek Estates. "Yeah, I know," says Travis, "The nearest creek is 20 miles south and the nearest cypress tree is 100 miles west in Santa Barbara. But that's not the point, the point is that everybody in Guatelombia grew up watching 'Baywatch' and has wanted to move to California ever since. Do you know how many people there are in the world? Well, I don't either, but, trust me, you don't want to know. There's an endless supply of people who want to live in California. And their brothers, too! Do you think Bush is going to shut the borders? The President says, 'Family values don't stop at the Rio Loco.'”

Travis’s voice get intense. “They're coming, man, and nothing can stop them. It's the American Dream!”

"Same with the money,” he continues, in a more relaxed tone. “When the Chinese get a check from Wal-Mart for a billion bucks for their latest boatload of plastic crud, they ask the smartest guy in Peking where to invest it. He calls up the smartest lad in London, who tells him, "Lend it to people buying California real estate. It'll be safe as houses." Nobody cares where they lend in California, just so long as it's in California. You should see the prices they’re getting this year for dumps in Hawaiian Gardens, Bakersfield, Pacoima, Compton. Compton.

“See, in Abu Dubai, nobody knows nothing about Hawaiian Gardens, other than it's in California. Over in Arabia, Sheik Rattleandroll thinks, 'It's like "Hawaii" and it's full of "Gardens," so how bad could it be?'

“Although, you'd figure," muses Travis, shaking his head, "That by now, even an Arab would've heard of Compton." ...

Travis says, "In fact, I think I'm going to pick up one of these babies, too, and sell it in six months. We'll be neighbors! Sort of. The mortgage company get a little snottier about interest rates when you tell them it's an investment, so I'll just check the "owner occupied" box. The broker doesn't care. He gets his commission, then Countrywise splits the mortgage into pieces and bundles each piece up with a thousand other pieces and sells the whole mess to Lemon Brothers. The Wall Street rocket scientists call this "secretization" because now they can't figure out what anything’s worth. It's a secret."

You can read the rest online right now by signing up for a three month free trial subscription (paper and online).

My published articles are archived at iSteve.com -- Steve Sailer

5 comments:

John Craig said...

Excellent. You've obviously met some of these guys, you captured that used car salesman tone perfectly. (How long before "realtor" replaces "used car salesman" as the standard shorthand for "sleazy liar"?)

Anonymous said...

Steve, I would like to know your thoughts on Daniel Gross' article in Slate [http://www.slate.com/id/2201641/] denouncing the right for linking the mortgage crisis to minorities. Is there any doubt about this? Could there be differences of opinion? Not knowing much about financial wheeling and dealing, I find it hard to credit one idea or another. Is the discrepancy between firms that went under and those institutions offering sub-prime loans linked to the shorting of loans? Wouldn't Gross know that, or even an economist such as Dean Baker?

David said...

anon asks

linking the mortgage crisis to minorities. Is there any doubt about this?

Steve has written about this extensively. His point, as I take it, is not that the crisis is linked to minorities but is instead linked to the unrealistic and irresponsible mindset that panders to minorities. A significant distinction, which some people seem to be congenitally unable (or stubbornly unwilling) to understand.

respighi said...

Mr. Sailer obviously has a real talent (one which I hitherto hadn't suspected, despite his numerous other authorial abilities) for writing convincing dialog.

rast said...

I'm already an amconmag suscriber, but I didn't realize I could log in to read it online. Thanks, Steve!

Steve's article was unsurprisingly good. But the last four words were superfluous -- in fact they made it slightly less effective. I'm surprised an editor didn't trim those.