Saturday, October 13, 2007

'I lost a quarter million dollars in value. I'm screwed.'

From the San Jose Mercury News:

When homeowner Dave Cantrell walked into the hotel ballroom Saturday where Anderson Homes was auctioning off one-third of the brand-new houses in his Manteca subdivision, he tried to be optimistic. He approached Anderson Homes executive Craig Barton, shook his hand and wished them both luck that the buyers would bid close to the latest asking prices of the 34 homes in the Paseo West subdivision that have been sitting empty since the real estate market soured.

But when the rapid-fire bidding was over 90 minutes later - and one winning bidder stood up like a prize fighter with his arms raised in triumph - Cantrell didn't even want to look at Barton, the man he invited into his home two weeks ago to calm the fears of his 26 neighbors who worried the auction would tank the value of their homes. "I'm feeling my worst fears right now," said Cantrell, who estimated that the auction devalued his neighbors' homes by roughly $200,000 each compared with what many of them paid a year ago. "I lost a quarter million dollars in value. I'm screwed."

Cantrell bought his home a year ago for $670,000 (not including the $90,000 he paid to install a pool and miniature golf course). The winning bidder Saturday of an identical home five doors down the street paid $391,000 - 38 percent less than what he paid.
...
When the auction was over, Cantrell walked outside and lit a cigarette to calm his nerves. He expected his neighbors to knock on his door when he got home to ask how things went. "I just hope," he said, "they don't kill the messenger."
...
Overall, the homes went for about 32 percent below the original asking price. The minimum bids had been set about 40 percent below asking price.

20 comments:

Rob Dawg said...

No wonder he's screwed. He thinks $670,000 minus $391,000 is "a quarter million." It's $279k dummy. Plus it's the extra payment you'll be making every month until you leave plus the $200.mo in taxes you are paying plus probably half or more of the $90k in improvemnt value.

Oh, did I mention? It ain't over. Heck, it ain't even stopped accelerating yet.

The guy who bought last year is by my estimate pissing away $3000/mo and losing another $6-8000/mo in equity. How long can he keep it up?

RMB said...

And the scariest part is that the people who bought these homes are still catching a falling knife. The area they bought in is one of those that is poised to go down the most so the next few years are going to be very tramatic for mr. cantrell

AgentBubble said...

Some more info:

Cantrell paid $658,500 for his 3,310 sf home and has three loans on the property according to tax records. Loans in the amount of $526,700, $65,800, and $26,684 totaling $619,184.

Did a 1/4 mile radius search from Cantrell's home and found the folliwng active properties:

1565 Queensland Ave - $455,900 - 3200sf

1824 Belmont - $487,900 - 3351sf

1629 Queensland Ave - $499,000 - 3200sf

422 Heartland Pl - $519,000 - 3868sf

268 Munter Ct - $629,990 - 4200sf

1744 Whisper Way - $659,900 - 4377sf

Those 6 properties have an average $/sf of $146.50. Based on the tax records, Cantrell paid $199/SF just a year ago.

AgentBubble said...

"I'm feeling my worst fears right now," said Cantrell, who estimated that the auction devalued his neighbors' homes by roughly $200,000 each

Newsflash--It wasn't the auction that did it. Existing home were already priced significantly below what he paid.

robert said...

Who pays $670K for a house in Manteca anyway? That's insane!

Max said...

Cantrell paid $658,500 for his 3,310 sf home and has three loans on the property according to tax records. Loans in the amount of $526,700, $65,800, and $26,684 totaling $619,184.

The guy who bought last year is by my estimate pissing away $3000/mo and losing another $6-8000/mo in equity. How long can he keep it up?


So he put $50,000 down and he's paying ~$4,500/month to live there. If he bails on the place, he could rent an equivalent house for ~$2500/month (or less). In two years, he gets his down payment back, and his credit is back five years after that. He could save up ~$190K in that same time by banking the "extra" $2000/month.

Or, he stays in the place, and in 18 years (at 3% appreciation) it'll be worth $670K again.

What would you do?

Jacob said...

Well that's what he gets for reving up his truck to scar away potential buyers...

actually the bank has lost that money cause eventually he will walk and just lose his downpayment. The bank will sell it and take the hit (or at least the lenders that have the second and third loans are out 100% of that).

dvobell said...

Good thing ya sprung fer the mini golf course und pool, Dave. Otherwise you wouldn't have those second and third loan$ to enjoy...

Perfect Storm said...

What would you do?

Walk!

Perfect Storm said...

In nearly 25 years of building homes, I have not asked a homeowner to pay more for a house when the value increased," he wrote. "Housing is cyclical and values will fluctuate as history tells us. Housing has been hit especially hard this cycle due to the financial market crisis and large number of foreclosures."

But I thought this was just a minor bump in the road.

Were right on track at least a 50% decline by 2009.

Diggin Deeper said...

Imho, we're just getting started on the price declines. The auctions have brought out the vultures who are now feasting on the roadkill. Expect these bogus sales events to lay a few home builders in the dirt as well. If they're upsidedown with the bank today, tommorrow they're bellyup, and the bank won't care what price they get for these homes. I wouldn't doubt we'll get a major bank failure in the process.

New home prices will continue to dictate price levels across the board. There won't be a neighborhood in Sacramento unaffected by this mess. As we move through this last quarter of '07 and into the 1st Qtr of '08, those that thought they got screwed "today" will really know what "screwed" is by next March. Expect the inventory levels to continue to push higher and consequently push prics lower.

Anyone who comes to this blog questioning whether we've hit a bottom ought to be taken with a grain of salt.

As far as the Fed rate cuts go, looks like they've had little or no effect on a borrower's ability to finance. Banks are skittish and are just not lending to anyone who's credit isn't AAA and that takes a lot of buyers off the market.

It's going to take time for all this mess to work itself out and let the "buyer beware" if he or she decides to jump in early.

Cow_tipping said...

There has to be a major builder go belly up and a major bank (no american home mortgage type peanuts either - seriously big bank - wells fargo, countrywide, some more) go belly up before I'd ever think of buying. Oh yea, 60-75 a sqft in prime sacramento location - not stink like manure, named like fat Manteca.
Cool.
Cow_tipping.

Diggin Deeper said...

While there were cases of buyers being duped into bad loans, I'd bet that, for the most part, 95+ per cent of the loans made during the upsweing were legit and above board.

There's no recourse for stupidity and a person's greedy appetite for refinancing debt at the tail end of the cycle. It's just tough luck due to poor judgement and timing.

The party had to end sometime and the poor souls that got there late are left holding the proverbial "bag". Unfortunately, no one knows how big that bag will get until the last home forecloses due to the froth that built up during the boom.

Cantrell bought a year ago, but there are those that bought two and three years ago, that now have little or no equity to work with. Huge price drops compound one's inability to refinance and to avoid future foreclosures. Not to mention that appraisors will be running scared and could be overly conservative in home appraisals for future loans.

andnee said...

Why is it that everyone is saying that we who cannot afford to purchase at this time and are waiting are "vultures"? No one is saying that sellers were vultures for selling at the best possible price they could get. So I guess I am confused at the hate pointed at buyers not trying to make a foolish decision and buy at the best possible price they can get.

Whats good for the goose, heard that before? Besides its really just too darn expensive at this point.

Diggin Deeper said...

andnee...

"Besides its really just too darn expensive at this point."

That's the point, why buy today, when tomorrow you're likely to get a chance to buy more for less? The market's in your favor right now, let it come to you rather than chase down to some level you'd regret.

Jacob said...

Because if you are buying then the agents get $$, if you are waiting then they don't, hense you are evil.

Cmyst said...

I have to agree. The reason I'm not buying today is the same reason I didn't buy in 2006: too expensive.

It's getting better, granted. But it still ain't right. It's cracking me up because people are now acknowledging that prices got way out of control for a few years, but they're not following the bouncing ball to the conclusion that prices must now drop to the norms.

There really isn't any choice here. Either prices drop, or wages go up.
None of us HAS to buy, and I don't care what the circumstances are. Want to start a family? Fine, move from your one bed/one bath to a 3 bed/two bath or a house rental. Getting married? Fine, see above.
Renters are NOT homeless, so there is no "have to buy" in the equation.

norcaljeff said...

Max, great points, I was going to write the same thing, although I think these people show be forced to repay these loans so we don't have to.
BTW, when do you and AB think the bottom will hit? I seems each weekend the bottom gets pushed out another month, doesn't seem to end!

Sac_Sol said...

I'd be thinking in terms of years, not months, to reach the bottom.

HOUSE2008 said...

All great points on this blog. As for "bottom", this economic elevator ride is really slow & there will be a lot of bouncing and jerking on the way down. (sounds fun) But rest assured the overhead music provided to you by a group calling itself N.A.R will keep you happily distracted. "Bottom" of floor 20,19,18,...