Thomas Jefferson believed “Financiers, bankers and industrialists make cities the cesspools of corruption, and should be avoided.” It is hard to argue with him given it is the actions of lenders that enabled the Great Housing Bubble.
Today’s property illustrates why something needs to be done to prevent irrational exuberance from creating volatility in our real estate markets. The family that bought this property put 25% down, and although they started with an Option ARM, they refinanced in 2006 into a fixed-rate mortgage. They tasted the kool aid and did not find it palatable. Families like this should not get screwed based on the timing of their purchases due to life’s circumstances. From the photos, it appears they have young children. They probably bought this as a family house. People should be able to do this without losing their life savings. If lenders did not enable people to overborrow, prices would rise about 4.5% a year, and people wouldn’t have to worry about when they bought or sold. Housing bubbles are not created with equity; they are created with borrowed money. People blow bubbles; lenders provide the air.
Income Requirement: $184,975
Downpayment Needed: $147,980
Monthly Equity Burn: $6,165
Purchase Price: $800,000
Purchase Date: 5/10/2005
Address: 11 Jefferson Ave., Irvine, CA 92620
|Property Type||Detached, Single Family Residence|
|Area:||Out of Area|
|On Redfin:||17 days|
This well maintained home is nicely situated on a well manicured
cul-de-sac. An elegant entryway, that includes a curved staircase,
leads to the formal living room and dining room. The large front window
in the living room adds extra charm and sunshine. The kitchen is well
designed, including a breakfast bar, walk in pantry and plenty of
cabinets. A breakfast nook is convenitently located between the kitchen
and spacious family room. A large firplace adds to the beauty of the
family room, making it the perfect gathering spot. Two upstairs
bedrooms open onto the Bonus Room, making the Bonus Room a great spot
for a toy room, excersize room or library. The backyard is beautifully
landscaped including a patio, large shade trees, flowers and grass.
This home is very close to schools, shopping and freeway access. This
Northwood HOA includes 2 Tot Lots & Swimming Pool.
Anyone want to comment on the decorative tastes of the owners?
If the sellers get their asking price (it seems about 10% too high), and if they pay a 6% commission, they stand to lose $104,494 — over half of their $200,000 downpayment. Realistically, they are going to lose almost all of it.
Just to provide a reminder of how overpriced homes still are, this property would probably rent for about $2,800 a month. A 160 GRM puts the value at $448,000. I you look back at the sale history, this property sold for $390,000 in 2001. Prices in 2001 were inflated, but not in bubble territory yet. A value of $448,000 is about where this house should be; it is where it would be if there was not a bubble, and it is about where it will be in 3-5 years…
BTW, the featured song today wasn’t written about real estate bubbles, but the lyrics offer that interpretation.
The summer had inhaled
And held its breath too long.
The winter looked the same,
As if it had never gone,
And through an open window,
Where no curtain hung,
I saw you, I saw you,
Coming back to me.
A transparent dream
Beneath an occasional sigh…
Most of the time,
I just let it go by.
Now I wish it hadn’t begun.
Comin’ Back to Me — Jefferson Airplane