Prices are still falling, and wise owners with equity are getting out while there is still some bubble equity left. There are not many of these people, but their movement against the masses of the kool aid intoxicated will give them greater profits than those that “wait and see.”
Asking Price: $299,567
Address: 119 Fallingstar, Irvine, CA 92614
{book2}
Afternoon Delight — The Starland Vocal Band
I admire the people who manage to sell a speculative asset for a profit. As I described in Speculation or Investment? it is a very difficult thing to do because it is at odds with your emotions. Today’s featured property owner missed the peak, and by holding on for the last two years, she has left about $100,000 sitting on the table (as evidenced by the June 2007 prices), but she is still selling when she is not financially distressed, and by doing so she will likely capture $100,000 in bubble equity before it disappears as well.
Why Speculators Fail
Despite the huge price spike in the
final two years of the bubble caused by wild speculation, most
speculators will lose a great deal of money. The causes are rooted in
basic human emotions that work against making the proper decisions to
profit in a speculative market. The moment a speculative asset is
purchased and the speculator has taken a position in the market,
emotions are immediately in play. If the potential resale price in the
market is rising, the natural reaction is to want more. Greed takes
over and the asset is strongly coveted by the speculator. If possible,
the speculator will go out and purchase more of the asset in question.
This was common in the bubble when people would take the equity from
one property and purchase even more residential real estate. The
problem with this natural emotional reaction is that it prevents the
speculator from selling the asset and taking profits when they are
available. People who make a living participating in speculative
markets have learned to override this natural instinct and sell when
their emotions are telling them to buy more. The average residential
real estate speculator does not have this discipline or awareness. They
will hold the asset through the good times.
When prices begin to fall in a speculative market,
most speculators immediately lapse into denial. They were so
emotionally rewarded by purchasing and holding the asset, they see no
reason to believe the first signs of a declining market are anything
other than a temporary aberration. As prices continue to fall, the
emotions change: fear begins to creep in, and the battle between denial
and fear goes on well past the breakeven point where the speculator
could have closed the position without losing any money. As prices fall
further, the fear begins to take an emotional toll and the speculator
starts to feel pain. The further prices drop, the more pain is
inflicted on the speculator. What is the natural reaction to pain? Push
it away. As a speculative investment becomes painful, the natural
reaction is to want to get rid of it. This prompts the speculator to
sell the asset – only after they have lost money. A speculator’s
emotions always work against them. When the asset is rising in price
they want more of it, and when it is falling in price they want less.
This is a natural reaction, and it is the cause of all losses in
speculative markets. This is why most speculators fail.
In case any of you missed Mr. Mortgage’s recent entry, 5-28 – Potential Consequences of 5.5% Mortgage Rates, he walks you through all the implications of the little-noticed mortgage meltdown that occurred this week. Our spring rally may come to an abrupt halt and many properties may fall out of escrow unless the borrowers locked their rates in.
Asking Price: $299,567
Income Requirement: $75,000
Downpayment Needed: $60,000
Monthly Equity Burn: $2,500
Purchase Price: $171,000
Purchase Date: 4/30/1998
Address: 119 Fallingstar, Irvine, CA 92614
| Beds: | 2 |
| Baths: | 2 |
| Sq. Ft.: | 1,227 |
| $/Sq. Ft.: | $244 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Contemporary |
| Stories: | 2 |
| Floor: | 1 |
| Year Built: | 1984 |
| Community: | Woodbridge |
| County: | Orange |
| MLS#: | P688358 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 3 days |
NOW. This home has everything: Two master bedrooms each with a full
bath plus a large loft area. There are lots of windows, a skylight and
an enclosed patio, a great room, laundry room, plenty of storage and a
garage. No one is above you, no one is below you and there’s only one
shared wall on this end unit with high ceilings. You feel like you’re
in a detached house. A few steps away from the door is the
well-maintained pool area with dozens of chaise lounges, so bring
sunscreen. Enjoy your coffee in the sun-splashed kitchen in the morning
or watch the sunset from the spa. There are dozens of parks near by
with volleyball courts and bike trails, yet you’re close to the
freeway. Live in a great school district in the safest city in the
nation near hip shops and restaurants.
That description is not too bad; it is accurate, and it has a minimum of flowery adjectives, and no bizarre punctuation.
This owner lost $100,000 or more waiting for two years to sell, but there is still plenty of bubble equity available. This condos will see prices near $200,000 before this is over with.
This property was purchased on 4/30/1998 for $171,000. The owner used a $163,050 first mortgage and a $7,950 downpayment. There was a refinance in 2003 for $161,500, probably to secure a lower interest rate. This owner was very responsible.
If this property sells for its current asking price, and if a 6% commission is paid, this owner stands to make $110,592. It will be a nice return on her $7,950 initial investment.
I hope you have enjoyed this week at the Irvine Housing Blog. Be sure
to come back next week as we
continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.
🙂
{book7}
Gonna find my baby, gonna hold her tight
gonna grab some afternoon delight.
My motto’s always been; when it’s right, it’s right.
Why wait until the middle of a cold dark night.
When everything’s a little clearer in the light of day.
And you know the night is always gonna be there any way.
Sky rockets in flight. Afternoon delight. Afternoon delight.
Afternoon Delight — The Starland Vocal Band
