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

Time In A Bottle — Jim Croce

Some time ago, I wrote the post Timing Does Matter, to document the financial impact of properly timing the market. Today’s featured property owners show how a family should manage their mortgage, and the benefits that can be obtained in retirement if you sell near the peak of a massive speculative bubble. I commend today’s sellers. They are the role models I will emulate in my own life.

Asking Price: $649,000

Income Requirement: $162,250

Downpayment Needed: $129,800

Monthly Equity Burn: $5,408

Purchase Price: $59,500

Purchase Date: 8/22/1980

Address: 14951 Elm Ave., Irvine, CA 92606

Today’s sellers will have to pardon my irreverence, but “Turkey Homes” and “light and bright” are something I can’t resist.

These people bought this house almost 30 years ago and paid off their original mortgage. They have two small HELOCs which appear to have been used to redo the kitchen and the roof. This should help them sell the property. These people did not participate in the borrowing orgy while everyone around them was. The HELOCs are through a teacher’s credit union, so one or both of the owners are probably teachers. The additional $550,000+ will go a long way toward supplementing a teacher’s pension.

This is how I want to manage my house. They got to live in a nice Irvine property for many years, they paid off their housing debt, they are selling at an inflated price (relative to fundamentals,) and now they can downsize and have some significant cash to enjoy in their retirement. What a great plan!

I don’t intend to make my house my only retirement savings. I set aside money for that purpose irrespective of what might happen with housing. If kool aid intoxication takes over after I buy, I am certainly not above taking advantage of the greed and stupidity of my fellow man — I am not counting on it, but if it should occur, it would be a nice pile of cash to play with when I am ready to stop working.

I salute you Mr. and Mrs. Financially Conservative owners. You have shown the rest of us the way…

I hope you have enjoyed this week at the Irvine Housing Blog. Come back next week as we
continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.

.

If I could save time in a bottle
The first thing that Id like to do
Is to save every day
Till eternity passes away
Just to spend them with you

But there never seems to be enough time
To do the things you want to do
Once you find them
Ive looked around enough to know
That youre the one I want to go
Through time with

Time In A Bottle — Jim Croce