Government Price Support Ending

The Fed's $1.25 Trillion MBS purchase program unceremoniously ended last week, and already, interest rates have risen. So far, their rise has been the modest 0.3% that CalculatedRisk has been predicting for a long time, but that doesn't mean they might not rise further; we'll have to wait and see.

Less than a month from now, at the end of April, the home buyer's tax credit will expire. On May 1st, the houses for sale that are not already under contract will see an immediate $6,500 drop in price, as their buyers will have exactly that much less buying power than they had the day before.

So the pressure is on for home owners wanting to sell to find a buyer ASAP. Your neighbors are your competition and there really aren't that many buyers, so you have to price aggressively if you want to sell.

Today, I'll feature two properties both in the Colony Woods neighborhood. The first has been aggressively dropping its price. The second has been keeping its price steady. Wanna guess which one I think will sell first?



XXX Knob Rd Asking $299,000. $95/sqft.

This house listed on February 12th for $349,900. They dropped the price to $339,000 twelve days later. Yesterday, they dropped the price to its current level. They reduced the price by 1/7th of its original asking.




XXX Spruce St Asking $294,500. $136/sqft.

This house listed February 11th at its current price, and it hasn't budged. Tomorrow, April 11th, from 2pm to 4pm, they are holding their third open house. I went to one of their prior open houses. It's a weird house; there is no door to the basement, just a stairwell leading down from the kitchen. The washer and dryer are on the opposite sides of the basement -- so odd. The bedrooms are pretty small. Nothing about this house stands out; it has not been remodeled or improved.

So why are the owners holding fast to their original asking price? If you've read my blog before, you know exactly where I'm going. The reason they can't drop their asking price is because they have radically increased their debt on the property in the time they owned it. They already spent the proceeds of their house sale. Let me say that again: they are looking to sell their house for 60% more than what they paid for it, and they will make no money on the sale.

08/28/1998 -- Purchased for $183K

08/28/1998 -- DEED OF TRUST -- $146,250 First Mortgage. 20% down payment.

10/08/1998 -- DEED OF TRUST -- $10K Loan? from Wachovia

06/26/2000 -- DEED OF TRUST -- $28K HELOC w/ Wachovia.

08/08/2000 -- SATISFACTION -- Paid off $10K loan from 10/98.

05/14/2003 -- DEED OF TRUST -- 138K 2nd Mortgage? w/ Balloon rider. First Financial Services Inc. (or US Bank NA?)

08/17/2005-- DEED OF TRUST -- 70,300 HELOC w Wachovia

08/31/2005 -- SATISFACTION -- $28K HELOC paid off.

03/07/2008 -- DEED OF TRUST -- $127950 HELOC from Wachovia

03/11/2008 -- SATISFACTION -- $70,300 HELOC paid off.



Total outstanding debt: $412,200, assuming they've fully tapped their $128K HELOC and have not paid down either of their mortgages. I have a feeling their actual debt is right around $294,500.

Because they cannot lower their asking price to meet the price the market is willing to pay for their house, they will be unable to sell before April 30th, and they will likely end up with a short sale or a foreclosure, trashing their credit record.

Mortgage Equity Withdrawal is what caused these home owners to find themselves in their current bind. MEW caused the bubble to inflate and it will be the source of the pain as the bubble deflates. We need to outlaw MEW.