Thursday, November 13, 2008

Sellers, Meet Reality. Reality, Meet Sellers.

According to this MSNBC article, home sellers are in denial about their house's value. Wait, really? Thanks mainstream media for bringing this to our attention!

Here is the lede:

The housing market may have gone bust, but many homeowners are still living in a bubble.

Despite dismal housing headlines and reports showing falling prices nationwide, owners in some once-hot areas still believe their home is gaining value or at least holding its own. And by hanging onto too-high expectations, sellers are unwittingly keeping the market from finding a bottom.

No shit, Sherlock.

You got a team of monkeys working around the clock on that one, do ya?

Any reader of this blog, or any housing bubble blog for that matter, have been aware of the greed and delusion of ignorant loanowners for quite some time. And although the mainstream media is a little late to the party, at least they brought some good scotch.

The article goes on to explore an actual loanowner who finally saw the light and priced accordingly--despite absorbing some substantial losses.

It took John Cicero and his wife an appraisal, some convincing by their real estate agent and some hard-to-swallow facts to get them to lower the $525,000 listing price on their five-bedroom home in Valrico, Fla. They closed two weeks ago for about $380,000.

"We didn't really understand the severity of the market," Cicero said. "We lost close to $100,000 in equity so we were walking away from real money."

They built the stucco home four years ago for $380,000 and poured more than $80,000 into it, putting in hardwood floors, granite countertops, ceiling fans, blinds, drapes and a built-in surround-sound stereo system. They also expanded the deck by the pool, turning it into what Cicero called an "executive entertainment area."

"You think you have this wonderful home and people will want to buy it," he said, "but you're wrong."

This example of reluctant--but inevitable--capitulation brings us to today's featured property. This apartment has been molting on the market for 127 days with no action.

The reason? An original asking price that screamed delusional "My property is special!" attitude. However, unlike the Florida couple, it didn't take long for the loanowner to see the writing on the wall, and their dream of a Greater Fool rescuing them from financial Armageddon has been dying a slow, painful death ever since. The question is, with his 25%+ discount, has he capitulated enough to nab a sale?

Address: 5190 E Colorado St #305, 90814
Asking Price: $309,999
Size: 2 beds, 2 baths, 1,106 sq. ft. (built in 1984)
$/Sq. Ft.: $280
HOA Fee: $685
Purchase price: $439,000
Purchase date: 6/2006
MLS#: P645610
On Redfin: 127 days
Down Payment: $62,000
Monthly Payment: $2,600
Income Requirement: $88,571
Description: WOW!!! SEE REMARKS!!!! Totally stunning top floor unit with all the amenities including cozy fireplace, remodeled gourmet kitchen with granite countertops, gleaming wood floors, lovely patio with tree-top and partial water views...Gorgeous!! Location, Location, Location- Accross from Marine Stadium, the beach at The Colorado Lagoon, 2 golf courses, steps to Belmont Shore and much more...WOW!

WOW!!! This realtor managed to write a 55-word description with only one spelling error! WOW!

When this apartment was first listed on the MLS on July 7, 2008, it came with a laughable price tag of $439,900. That’s just 900 clams more than he paid exactly two years earlier. Although a sale at that price would result in a loss after commissions, the seller, full of bravado and delusion, steadfastly refused to believe the condo was worth less than what he paid for it.

It took just one week to be disabused of that misguided notion. On July 15, the price was quickly reduced by $40,000.

Several more price cuts followed, but August was when things went haywire:

Aug 06, 2008 - Price Reduced to $384,900
Aug 14, 2008 - Price Reduced to $310,000
Aug 19, 2008 - Price INCREASED to $339,900 (greedy habits die hard, eh?)
Aug 20, 2008 - Price Changed to $310,000

In just 14 days, the price went from $384k to $310k, with one price increase thrown in for delusional kicks. You'll also notice the current asking price is one dollar less than the August 20th asking--way to go, pal!

And yet, still no interest for months. Ouch.

However, on the surface $309k seems like a realistic price--especially considering the great neighborhood, proximity to the lagoon, two parking spots and in-unit laundry. So why no bites?

Because potential buyers quickly discovered it's still overpriced, even at $280 per square foot. Other than the days on market stacking up, what makes me say that? One word, three letters:




In case you missed it, between two separate HOA fines you're writing a $685 check every month. Fully 1/4 of your monthly payment is purely HOA fees!

Paying that at West Ocean Two is one thing, but this place? With no pool, gym or douchey conceirge service? Puh-leaze.

As you can see, $309,999 doesn't seem like such a smoking deal anymore.

Here are the facts as I see them:

1) This dolt grossly overpaid for his condo in 2006.
2) During his brief tenure as loanowner, homeboy paid more than $19,000 in HOA fees.
3) Assuming a 10% down payment, this sucker parted with nearly $100,000 in mortgage payments (around $70,000 after tax write offs)
4) Assuming this seller was the one who upgraded the kitchen, there's another $15,000.

And so, if this desperate seller manages to find a knife-catcher comfortable with a $2,600 monthly payment on an apartment (who is dumb enough not to notice that this place rents for significantly less), this owner will have dumped nearly $180,000 into their flat AND WILL WALK AWAY WITH ABSOLUTELY NOTHING.

If the lender agrees to a short sale at $309,999 (and again assuming the current owner put down 10% and not some huge sum), their loss will be in excess of $130,000.

Sellers can continue to deny the bubble has burst and can stick to their idiotic pricing guns until they rack up 1000 days on the market, but the fact is the party's over and all that's left for those who overpaid between 2005 and 2007 is very real, very painful financial destruction.

For distressed sellers, 2009 will be where the rubber hits the road. Continuing to childishly deny reality and cling to ignorant ideas about what properties are worth will be futile in the face of recasting Option ARMs, continued job losses, contstricting lending standards, and banks trying to unload their growing foreclosure inventory.

WOW!!! Grab a bucket of popcorn because this is going to be a really exciting year! WOW!


  1. Your web is great!! I learned something about WOW here!!!!

  2. I read this article a couple of days ago and immediately thought of all SFRs in 90815-ish that I have been watching for over a year now. WAKE UP FOLKS. I saw one the other day whose list price came out to equal 20% appreciation every year for the whole 10 years they owned it. Awesome.

    "We lost close to $100,000 in equity so we were walking away from real money."

    I especially like this comment. Is it really "real money" if it can't be accessed?

  3. There is another small problem with this condo.
    The actual HOA fine is $250.00 and the other small chunk ($435.00) is actually the land lease fee. Correct. This beauty was built on leased land...
    Sorry about the "Anonymus" post, I couldn't make this thing work. Here is my name.


  4. L_Thek_Onomics,

    Ahhhhhh. Thank you for providing that information. Anybody know how long the lease is? If it's 100 years, no sweat. If it's 10, you're taking an awfully big risk.

    With condos, you're generally only paying for the structure, not the land, but with land leases you might as well buy a mobile home on the beach for $200k.

    I just don't see how this condo can compete with nearby properties when the HOA/Land Lease fees are that high.

  5. is reality starting to drop like bricks on the sellers heads?

    One of the Cliff May's dropped $200k today

    It is actually nicely renovated, and getting towards realistic!


  6. As I know, this is a 50 years lease, so still about 25 years left. The problem is, any projected appreciation has been offset by the devaluation, as the lease expiration approaches. Another minor problem, no long term maintenace makes any sense, so the typical condo building on leased land slowly, but surely deteriorating.


  7. Anon on the Cliff May...wonder if that's a mistake. Redfin shows two price changes for the 14th. One at 495 and one at 395.

    If it really is 395 it means they're just 70k from a 50% haircut from the 2005 purchase price. Nice. Good find.

  8. FreedomCM,

    Amazing find on that Cliff May house! Anonymouse, it could very well be a mistake but I think it's more likely a tactic to incite a bidding war (kind of hard to start a war when the troops have no arms or bullets with which to fight, but I digress). The $ per square is just too low compared to the estimates and nearby homes for sale--a short sale would never be approved at that price. So it has to be a ruse to garner interest. Hell, we're talking about it, so bravo!

    This poorly-located clutter bomb will be bank-owned very quickly. There's no way an individual can shoulder a $260,000+ loss and live to tell about it. Plus, those monthly carrying costs have got to feel like a piping hot soldering iron in the eye socket by now.

  9. Regarding the Cliff May, that's exactly what I'm looking for. I immediately wanted to make an offer. Then I calmed down and said, "No, just watch it for a month." Then I woke up this morning and said to myself, "Even though this house at this price would be easily within my affordibility range, am I going to have a job in a year? Do I want to take on that commitment right now?"

    Which led me to wonder what prices for homes like these will look like if the economy really starts to tank. Maybe I'm being overly cautious but I have to wonder how much the uncertainty of pretty much everything right now will continue to effect prices. Or are there enough people willing to take the risk to keep prices from falling faster? Anyway, I think the point of all that is that we are in interesting times.