Precious Declaration — Collective Soul

There is a group of nervous home sellers who are trying to sell their homes for enough to pay off their mortgages. Some of these were buyers toward the end of the rally that paid too much, and some are owners who bought earlier but mortgaged themselves into the same precarious position. They are wise to try to sell now if they can get enough to pay off their debts and save their credit. Today’s featured property is an owner who extracted much of their equity, but they still have some room to maneuver before they go underwater. In my opinion, there feeble price reductions have not shown the aggressiveness necessary to move this property before the market leaves them underwater, but I guess they don’t want to give it away.

Asking Price: $839,000

Income Requirement: $209,750

Downpayment Needed: $167,800

Monthly Equity Burn: $6,991

Purchase Price: $565,000

Purchase Date: 12/20/2002

Address: 55 Declaration Place, Irvine, CA 92602

Beds:	5
Baths:	3
Sq. Ft.:	2,830
$/Sq. Ft.:	$296
Lot Size:	5,000 Sq. Ft.
Property Type:	Single Family Residence
Style:	Contemporary
Year Built:	1997
Stories:	2 Levels
Area:	West Irvine
County:	Orange
MLS#:	P639612
Source:	SoCalMLS
Status:	Active
On Redfin:	96 days
Unsold in 90+ days

Title Case… Again…

Plenty of exclamation points!

The owners of this property refinanced in 2006 with a $752,000 first mortgage. They need to sell this place for $800,000 to pay a 6% commission and break even on the deal.

I imagine the 5% reduction in asking price seems like a lot to them, but if they don’t sell this summer, they will probably go underwater. It is difficult to feel too sorry for them considering they have already extracted $187,000 plus their downpayment from the property. Perhaps they have this money sitting in an investment account and could pay off the shortfall at closing. Does anyone think this scenario is likely?

When you look at our current inventory of homes, you see that the composition is very different than what is found in a normal, healthy real estate market. Usually, the number of distressed properties (REOs, short sales and nearly short sales) is very low. In appreciating market conditions, the distressed properties sell quickly, and the vast majority of sellers can get at or above their asking prices because they don’t need to sell. The amount of distressed inventory becomes a larger percentage of the market, sellers become more aggressive (at least the ones who can) and prices stop appreciating. When the percentage of distressed properties gets very high, prices go down. This is what we are seeing now. It becomes a negative feedback loop as price declines distresses more properties which drives prices down even more. Today’s seller would not be distressed if prices had not fallen to close to their breakeven price. They need to sell now because prices are dropping and they probably have difficulty affording the very large mortgage they now have (It is possible their household income rose 70% since 2002, but I doubt it). This is the downward spiral playing out one property at a time.

.

Hitched a ride to the peaceful side of town
Then proceeded where thieves were no longer found
Cant crash now Ive been waiting for this
Wont crash now I found some encouragement
Precious declaration reads
Yours is yours and mine you leave alone now
Precious declaration says
I believe all hope is dead no longer

Once I jumped thru hoops of fire
As high and far as you required
I was blind but now I see
Salvation has discovered me

Precious Declaration — Collective Soul