Should I stay or should I go?
If you say that you are mine
I’ll be here ’til the end of time
So you got to let me know
Should I stay or should I go?
Always tease tease tease
Should I Stay or Should I Go? — The Clash
This is the question every underwater, subprime borrower is asking right now. Most of these people just wanted a home, and if they could afford the payments, they would probably stay in them ’til the end of time. They were enticed with the teaser rate on their Option ARM, and if they can’t serial refinance (tease tease tease,) then they would like this teaser rate made permanent. Unfortunately, it is not going to happen.
Remember the Adjustable Rate Mortgage Reset Schedule?
The gray lines making up the majority of these loans reseting in 2007 and 2008 are subprime. This is what is causing prices in areas like Santa Ana or the Inland Empire where subprime was concentrated to fall precipitously. The big price drop caused by the collapse of subprime will put many homeowners in a weakened position where they may be underwater or have a very high loan-to-value ratio. When the next wave of resets hits the market (the Alt-A and Prime crowd that makes up most of Irvine) prices will be lower because of all the subprime defaults. The Alt-A and prime borrowers in Irvine may face difficulty with refinancing because they will not have enough equity to fall within the tighter lending standards necessitated by the subprime collapse. The subprime fiasco may not hit Irvine directly, but it has created the conditions that will poison Irvine’s market when its toxic loans ripen in 2009 and 2010.
They say all real estate is local, but this isn’t true. All real estate markets within driving distance are linked together by commuters. If prices in Corona drop to the low $100,000s, prices in Irvine will certainly fall. There is a price differential that will entice people to fringe markets. This creates price drag on the primary markets as some potential buyers are siphoned off by the fringe markets. Eventually this effect will work its way to the most desirable markets on the coast. The collapse of the real estate market is like a land tsunami: it starts inland and makes it way overland to the coast leveling everything in its path. The markets in Coastal California will not be spared, particularly with as extremely overvalued as they currently are. If GRMs fall to 160 in Irvine, they will not stay at 400 in Corona Del Mar.
Today’s sellers have earned my admiration. Once they decided it was time to go, they stopped messing around and priced their home to move.
Income Requirement: $217,363
Downpayment Needed: $173,890
Monthly Equity Burn: $7,245
Purchase Price: $970,000
Purchase Date: 10/4/2004
Address: 56 Calavera, Irvine, CA 92606
|Lot Size:||6,000 Sq. Ft.|
|Type:||Single Family Residence|
|On Redfin:||117 days|
Unsold in 90+ days
Highly & professionally upgraded. Most desirable home in Westpark2. Granite counter tops, High grade wood flooring through out the house, Italian pavers in kitchen, Crown molding & 5inch base boards, Custom Paint, Tumbled Travertine back splash in kitchen, Built in cabinets & high grade flooring in garage, Stainless steel appliances w/ Refrigerator, Automatic fireplace remote igniter, rolling garage door, Home media center with speakers throughout house5th BR does not have closet (Den/Office).
This house was orginally listed for the WTF price of $1,150,000 on Oct 24, 2007. It is not a big surprise it did not sell. What is surprising (and admirable) is the $300,000 price drop they made a few weeks ago. As was discussed in Selling for Less, a property needs to be listed for some period of time at a sales price which would result in sufficient funds to pay off the loan before a short sale would be approved. Do you think they arrived at an asking price of $869,453 by randomly picking numbers? It is probably the exact payoff figure for the loan on their property after commissions. In today’s market, this house is a good deal, but with no room to negotiate on price, it may not be good enough until it is eligible to become a short sale.
That concludes another week at the Irvine Housing Blog. Come back next week as we continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.