Deadhead — Devin Townsend
Our market is experiencing wave after wave of pain. Will the owners endure, or will they give in and sell? It depends on the circumstances and the constitution of each owner, but those with little to lose are giving up without much of a fight, and they are passing the pain on to the lenders. Today’s featured property is a classic illustration of kool aid intoxication and bubble behavior. The owner bought with 100% financing late in the rally, she managed to pull out a bit of spending money, and now that prices are crashing she is bailing out and leaving the losses to someone else. The losses to the lenders are accelerating along with the decline in prices. This one is gonna hurt…
Income Requirement: $143,725
Downpayment Needed: $114,900
Monthly Equity Burn: $4,790
Purchase Price: $764,000
Purchase Date: 4/22/2005
Address: 46 Townsend, Irvine, CA 92620
|On Redfin:||3 days|
features granite counters and dark maple cabinets, hardwood flooring,
luxurious master bath with dual sinks, built-ins in master closet.
Seller is installing new stove, diswasher and microwave.
I have seen this floorplan, the dual master layout is interesting, but not practical for a conventional family. I could see a roommate situation working out, particularly if one of the roommates has a child. Also, a household with a single child might like it, particularly if the in-laws visit frequently. There is no yard, but you do get a claustrophobic patio surrounded by two-story house elements. It feels like a cave.
Today’s seller used 100% financing, so any money pulled out of the property was the bank’s money. Their rate-of-return would be infinite as they have zero initial investment. On 5/4/2006 almost 1 year after the initial rental purchase, the owner refinanced with a $688,000 first mortgage and a HELOC for $86,000. Apparently, she was not happy with only getting $10,000 spending money out of her little investment (she had owned a whole year, surely she should have made $100,000, right?) On 5/23/2006, she must have found a “better” appraiser because she was able to open a HELOC for $172,000 which enabled her to pull out $96,000. This left a total debt on the property of $860,000. If the lender can get the asking price, and if a 6% commission is paid, the total lender loss will be $319,594. That is almost 30% off the peak valuation for this property.
Here is another property in Woodbury looking to drop below the $300/SF mark. In early 2007, I saw one of these properties asking $3,000 per month in rent which based on similar properties at the time was a reasonable rental rate. Assuming $3,000 per month is a valid rental rate, and assuming this rate will not decline in the face of a deteriorating economy, the value of this property based on its rental cashflow is around $480,000. The asking price of this property is within $100,000 of its cashflow value.
Those homeowners who are holding on and those holding their breath because they are underwater have people like today’s seller to thank for the continuing decline in prices. In a normal market (if there is such a thing in California) this property would not be for sale. It is only being sold because the owner can’t afford it and the values have dropped too much to warrant hanging on. As prices drop further, it creates more owners like this one. In short, it is a downward spiral. After our brief summer leveling period, expect another big drop this fall and winter. We are not at the bottom yet.
You are a sun Goddess
Will you save me?
Hooray for you.
Now the rain it comes, the rain it blurs the grey line
…the grey line…the Greyhound home
You are so vicious (Hurt me, I can take it)
Cause it’s all in the heat of the moment,
It’s all in the pain
Sonar, sonar again…
It’s on again, (got no wings…gossamer wings…) …on again…
You are a sun Goddess!!!
Will you save me? …babe…babe…babe…
Cause it’s all in the heat of the moment
It’s all in the pain!!!
So give in to the heat of the moment
Give in to the pain!!!
Deadhead — Devin Townsend