Columbus Stockade Blues — Brother Oswald
One of the myths about Christopher Columbus and his voyage to discover a quicker trade route to the East was that he had difficulty getting crewmen to serve because they believed the world was flat, and if they sailed far enough, they would fall off. Similarly, one of the myths about residential real estate is that prices always go up, and if they rise too high, they will not fall off. The people who bought in Columbus Grove did so right at the peak, and the continuing activities of the builders finishing off the community pushed their resale prices off the edge of the flat earth. The drop there has been remarkable.
The Columbus Grove experience shows what happens when large amounts of must-sell inventory is concentrated in one place. When prices become extremely inflated, and the market finally starts to fall, it creates a downward spiral that does not abate until prices are at fundamental valuations. However, the rate of decline is largely dependant upon the amount of must-sell inventory in specific areas. So far, the areas that have fallen the quickest have been those with large percentages of subprime loans (Santa Ana,) large numbers of new homes (Columbus Grove,) or both (Riverside County). This does not mean that the neighborhoods like those in Irvine are immune from the crash, it will just take longer here, and since it will take longer, they may not fall quite as far on a percentage basis because rents and incomes will be increasing as prices fall (we hope). Irvine and other neighborhoods will fall in time, most likely when all the Alt-A and Prime ARMS reset.
Income Requirement: $220,000
Downpayment Needed: $176,000
Monthly Equity Burn: $7,333
Purchase Price: $1,226,000
Purchase Date: 8/31/2006
Address: 22 Honey Locust, Irvine, CA 92606
|Single Family Residence
floors, designer carpet and travertine & tile floors throughout.
State of the art family kitchen with oversized island with
wine/beverage cooler, 6 burner stove, granite counters and stainless
steel appliances. Custom wought iron stair case, wood shutters and
custom window shades throughout. Master Suite with retreat &
romantic fireplace, spacious walk-in closet with custom organizers,
luxurious jetted bathtub. 4 Bedrooms upstairs, 1 main floor bedroom
& bath, office/den downstairs. Desirable floorplan for a growing
family with 3 car garage. Oversized Great room/Family Room with
fireplace. Corner house at the end of cul-de-sac. Great Irvine Schools
and Association Club house, pool, BBQ & Parks. Close to the
District Shops and Restaurants. So much for the value.
IMO, the front elevation is ugly and boxy.
This property is being offered for 28% off its peak purchase price. Since fundamentals have not caught up much in the two years since this was purchased, it is probably only a little more than half way to its bottom value. This property was at least 100% overvalued at the top, so a full 50% haircut is in order to get the price back to sanity. Maybe in 2 or 3 years if incomes have gone up, this property might be worth $700,000, but on a breakeven cashflow basis today, it is probably only worth $600,000.
The owner actually put some of his own money into this deal. The property has a $980,700 first mortgage and a $184,000 second mortgage leaving a 61,300 downpayment. That loss probably stings a bit, but it is the lender who is getting really hosed. If this property sells for its asking price, the total loss will be $398,800 after a 6% commission. Greenpoint Mortgage originated the loan. There is no telling who owns that toilet paper now.
In many ways, this former loanowner is one of the lucky ones, he has escaped his debtor’s prison. The rest of the neighborhood is trapped, and 15-25 years from now when values get back up to the peak prices they paid, they might be able to get out…
Way down in Columbus, Georgia
Want to be back in Tennessee
Way down in Columbus Stockade
Friends all turned their backs on me
Go and leave me if you wish to
Never let it cross your mind
If in your heart you love another
Leave me little darling, I don’t mind
Last night as I lay sleeping
I dreamt I held you in my arms
When I awoke I was mistaken
I was peering through the bars
Many a night with you I’ve rambled
Many an hour with you I’ve spent
Thought I had your heart forever
Now I find it’s only lent
Columbus Stockade Blues — Brother Oswald