You Light Up My Life — Debby Boone

If you are renting and waiting for prices to drop further, properties like this one light up your life. Of course, if you are trying to sell and get what little equity you have left out of the property, it doesn’t feel quite the same. Today’s featured property is a rollback on a 2004 purchase, and after 243 days on the market, it probably hasn’t rolled back enough.

This property is part of the market segment that will totally collapse
next. The low end of the market has already been obliterated and is
beginning its slow decline to the bottom. The owners of properties over $500,000 are
still clinging to the hope that the jumbo loan market will come back
and allow buyers to finance the sums necessary to purchase them. It
isn’t going to happen. Most properties requiring a loan in excess of
$417,000 plus a downpayment are sitting on the market. There are few
buyers who can either obtain the financing or truly afford it. The lenders
are requiring people to prove they make enough to afford the payments.
Most can’t.

Asking Price: $570,000

Income Requirement: $142,500

Downpayment Needed: $114,000

Monthly Equity Burn: $4,750

Purchase Price:
$610,000

Purchase Date: 8/26/2004

Address: 8 Lantern, Irvine, CA 92618

Beds:	3
Baths:	2.5
Sq. Ft.:	1,340
$/Sq. Ft.:	$425
Lot Size:	–
Property Type:	Condominium
Style:	French
Year Built:	1999
Stories:	2 Levels
Area:	Oak Creek
County:	Orange
MLS#:	U7004532
Source:	SoCalMLS
Status:	Active
On Redfin:	243 days
Unsold in 90+ days

Nice size backyard for entertaining? If you like to entertain on a tiny patio.

What makes a bath a “great bath?”

When this property was purchased in the summer of 2004, the owners put 10% or $61,000 down. They did not refinance or otherwise extract equity from the property. Right now, they probably wish they had. They behaved responsibly, and they will probably end up with the same credit problems as the irresponsible who got to spend all that free money. If this sells for its asking price, the total loss on the property will be $74,200. The owners will lose their $61,000 downpayment, and the lender will be out $13,200. If these people are as responsible as their history suggests, they may pay the lender off. Morality has a cost. How much would you pay?

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So many nights I sit by my window
Waiting for someone to sing me his song
So many dreams I kept deep inside me
Alone in the dark but now
You’ve come along

It can’t be wrong
When it feels so right
‘Cause You
You light up my life

You Light Up My Life — Debby Boone

This property went back to the bank for
$425,279. That is 26% off the peak. I foresee the 2002 price as its approximate value at the bottom:

Sales History

I’ll have a blue Christmas without you
I’ll be so blue just thinking about you
Decorations of red on a green Christmas tree
Wont be the same dear, if you’re not here with me

And when those blue snowflakes start falling
Thats when those blue memories start calling
You’llbe doin all right, with your Christmas of white
But Ill have a blue, blue blue blue Christmas

Blue Christmas — Elvis Presley
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Today’s listing is a portrait of a bagholder. This ugly property was purchased right at the peak in Mid-2006 with 100% financing. If this property was not purchased with 100% financing, the owners probably would have tried to hold on longer, but with the market tanking, and the payments burning a huge hole in their monthly budget, it is easier to just walk away…

Asking Price: $514,900

Income Requirement: $102,980

Downpayment Needed: $128,725

Purchase Price: $577,000

Purchase Date: 8/8/2006

Address: 5065 Balsawood, Irvine, CA 92612

First Mortgage $461,600
Second Morgage $115,400
Downpayment $0

Beds: 2
Baths: 2
Sq. Ft.: 1,185
$/Sq. Ft.: $435
Lot Size: 2,940 sq. ft.
Type: Single Family Residence
Style: Other
Year Built: 1974
Stories: One Level
Area: University Park
County: Orange
MLS#: P611279
Status: Active
On Redfin: 5 days

From Redfin, “Best value in the Terraces!!! Light, bright, and open single-level Terrace home. Newer paint and carpet. Newer Milgard dual-pane windows, with three skylights that flood warmth and sunlight into this charming home. Vaulted ceilings in living room and in master bedroom. Italian porcelain tile flooring throughout living room, family/kitchen area, and rear courtyard. Located on a cul-de-sac for added privacy but close to HOA pools and spas. Don’t miss out on this great opportunity.”

Nice of the realtor to provide the lovely pictures of the garage door and the front door.

Three exclamation points!!!

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I wrote at length last week on the impact of 100% financing. Properties like this one are on the market because the owners are underwater and they have no money in the deal. We have seen the market is about 20% off the peak right now, particularly for the less desirable properties. I think it likely this price will have to drop another $50K-$75K to find a knife catcher. However, assuming the seller lender gets their asking price, the total loss on the property will be $67,614, assuming a 6% commission.

Just how common are 100% financing deals? Are there enough of these to really hurt the market?

According to Credit Suisse, more than 60% of loan originations in Southern California had piggy back loans. Subprime loans had an astounding 94% average loan-to-value ratio. Of more importance to Irvine’s market 55% of Alt-A Jumbo loans had piggy-back loans attached to them. If Irvine is supposed to be a move-up market and everyone is sitting on mountains of equity, why would anyone need a piggyback? Given the high transaction volumes of the bubble rally and the subsequent 20% decline in individual property prices we have demonstrated on this blog, one can speculate there are large numbers of underwater homeowners with loan-to-value ratios in excess of 100%. It is likely we will see a plethora of short sales in 2008.