Southern Village: 170% appreciation.

203 Edgewater Circle. Asking: $206 / sqft. Price: $634,900.

I'm starting a new theme to my sporadic posts on this blog.

I have been in awe of the incredible reporting on the housing bubble in Irvine California from the Irvine Housing Blog as well as from the Seattle Bubble Blog, the Real C'Ville Blog and the Housing Bubble Blog. The new theme will describe properties in Chapel Hill, North Carolina, which I believe are over-valued. I am looking to eventually buy a house in Chapel Hill, but I don't want, having saved up money for several years, to put a down payment on a house and then watch that down payment evaporate as the house depreciates. The purpose of this blog is mostly to remind myself* of two things:

1) In the past 12 years or so, the selling price of homes in Chapel Hill has grown beyond historical standards.
and
2) The selling prices of houses in Chapel Hill have not yet deflated significantly the way they have in California, Nevada, Florida, DC, and other parts of the country. I think they should and that they will.

(*I don't believe anyone reads this blog besides a handful of close friends. I've always kept this blog for me more than for my readers. That will likely continue.)

There are bears out in the world, and in the past few years, their voices have had more sway. Their basic premise is this: "exotic" financing changed the supply/demand characteristics in the housing market, causing an increase in prices. Exotic financing is now gone, therefore, the supply/demand characteristics in the housing market should cause a return to affordability in the housing market.

Coincidentally, "exotic" it an anagram for "toxic". Well, it's almost an anagram. Maybe you've heard of toxic assets and the ruin that they have brought upon Wall Street? Those toxic assets are these exotic loans. They're being flushed out of the system at considerable expense to the tax payer. New mortgages are no longer exotic, but older toxic mortgages are still out there and will be bleeding the housing market for the next few years or so... we'll have to wait and see.

What I love about the Irvine Housing Blog is IrvineRenter's ability to look into the financing history for properties. He's watched California residents go deeper and deeper into debt to afford their extravagant lifestyles. I would love to be able to look into the financing details of home owners (often called home debtors or fauxowners -- come on, being $500K in the hole doesn't make you an owner, it makes you a debtor) in Chapel Hill. I don't have access to the same data that IrvineRenter has; I'm not in the real estate business, so I don't have access to the same database.

But I do have access to public records online through the Orange County website. I admire IrvineRenter's insistence on home-owner anonymity. While I intend to talk about specific properties, I have no intention of talking about names of actual owners. Like IrvineRenter, I will monitor the "comments" section of this blog and delete posts that mention the home-owner's name.

So that brings me to today's post:
203 Edgewater Circle in Southern Village.

Currently, it looks like sales in Southern Village are happening at the $205 /sqft range -- except, there aren't many of these sales, and there are a lot of houses for sale. This house is not overpriced when it comes to comparable recent sales, but it is way more expensive today than it was in 1998 when this house was built.

In 1998, public records for this property show a sale at $235K, or $76/sqft. In 2002, this house sold for $360K, or $117/sqft. In 2007, at the height of the bubble in every other city in North America, this house sold for $598K, or $194/sqft.

Now, two years later, the owner is seeking a futher appreciation of $12/sqft. If the current owner gets their asking price, then in the 12 years since its construction this house will be sold for 270% of it's original price.

See, now, here's my problem. This is a Ponzi scheme. Future residents purchase the debt burden of previous residents and then kick in extra money for the time and effort of having lived in a house.

What? You make money by living in a house? Sign me up!

The thing about house-living is that it's not hard. Anyone can do it. You can do nothing with your life, contribute nothing to humanity or society, and yet be rewarded by having resided in a house. House-living is the occupation of the future. Right?

I think Southern Village will bottom out in the neighborhood of $117/sqft when this bubble finally deflates.