900% Return on Investment

XXX Brookgreen Drive $199/sqft. Asking $513,000

Invest $25K in a 10% downpayment on a $250K house. Wait 10 years. Sell that house for $500K. You make $225K off $25K

But before you say "that sounds too good to be true," just wait until I tell you that you don't even have to sell the house to start seeing a return on your investment!

Here's the timeline for todays home-debtors:

01/29/1999 Purchased for $251K, $225K mortgage. $26K down. Spruillco Ltd and Norwest Mortgage made that happen.

10/16/2000 Took out a stand alone 2nd mortgage of $25K from Bank of America.

01/05/2004 Refinanced their 1st mortgage with a $218 Mortgage from Wells Fargo.

03/10/2006 Refinanced both mortgages together into a single $356K mortgage with the Carolina Home Mortgage Company.

Today's home-debtors stand to make a handsome profit if they're able to get their asking price. Hell, they've already spent an extra $106K from their original $26K investment. They've already made a handsome profit. Too bad for today's debtors their next buyers will have to put twice down what they had to. Instead of $25K, the next sucker in this ponzi scheme will have to put down $100K.

Pipeline

The foreclosure process is going to help purge our system of excess debt. It will be very expensive for banks, and traumatic for home-debtors. But it will return housing costs to those which can be sustained.

Home buyers between 2001 and 2007 started extending themselves more and more so that they could purchase a home. Real estate appreciates endlessly, of course, and so you make money by owning real estate. The more expensive a house you buy, the more money you make. Over extending yourself to afford a home is in fact a sound financial decision. The more people that over extend themselves, the more housing prices increase, the more attractive over-extension becomes. It was a positive feedback cycle: all that needed to happen was for lenders to keep pumping debt into the system. Thus the exotic loans: 10% down, 0% down, subprime, liar loans, interest-only loans, negatively-amortizing loans.

Unfortunately for the people that bought between 2001 and 2007, housing couldn't appreciate forever. Now the buyers that could barely afford a house in 2007 cannot sell their house in 2009 because they owe more than the house is worth. They are trapped. It sucks.

Chapel Hill saw a lot of 10% down mortgages. I haven't found any 0% down. I have seen a lot of ARM mortgages, but not any interest-only or negatively-amortizing loans. Most people took out conventional mortgages. Lots of them took out 80/10/10 mortgages (80% first mortgage, 10% second mortgage, 10% down). Chapel Hill won't be seeing tons of foreclosures due to the grossly exotic loans. What about foreclosures from conventional mortgages where the buyer simply overextended themself?

So far, foreclosures have been very light in Chapel Hill. I keep looking at the Google foreclosure map, and there are ever only about 17 properties in the foreclosure process (delinquent, foreclosed, reo) -- some foreclosures come and go, but several have been showing up consistently for a very long time. The one on North Hill Road, for instance, was foreclosed upon back in August 2008.

So are we ever going to see a foreclosure wave hit Chapel Hill? If we don't, prices will deflate more slowly.

CalculatedRisk has a post showing a graph with the "seriously delinquent" rate for all conventional mortgages it backs. It's a hockey stick graph: flat until mid 2007 when it shoots straight up. It's still going up.

Foreclosures are coming.

Harrington Bank

Calculated risk just posted a link to a website that has calculated the troubled-asset ratio for all banks in the US.

I've seen a couple familiar banks show up again and again in the HELOC records for Chapel Hill properties. Harrington Bank, which is headquartered in Chapel Hill, is one of those banks.

What's Harrington Bank's troubled-asset ratio? 24. That means the value of its assets tied up in non-performing assets (foreclosures) and 90-day delinquencies are 24% of its capital + reserves.

That's well above the national median of 13. It's also way up from this time last year when its troubled-asset ratio was 1.3.

To avoid blowing this out of proportion, I should point out that when the FDIC closed the Georgian Bank in Atlanta on Friday, the bank had a troubled asset ratio of 198.

A couple other ratios for banks based in North Carolina:
New Dominion 56.
RBC Bank 38
Mechanics and Farmers Bank 35
Wachovia 34 (I thought they were gone?)
Bank of America32

Dark days for bankers ahead. They have a lot of writing down to do.

August home sales from TMLS

From the Triangle MLS website:



August registered 123 sales. There were 144 sales in July 2009. Of course, it's expected that August sales drop relative to July sales. In 2004-2007, August sales fell by 8% relative to July. However, this year August fell by a much larger 14% relative to July.

The triangle MLS reports that cumulative sales are down 25% compared to last year. From the numbers that Kral and I have collected, 2008 sales were down from 2004-2007 sales by 30%. If the Triangle MLS says we're down 25% from 2008, then we're down 47% from 2004 to 2008.

Indeed, my cumulative total for January to August Chapel Hill sales in 2004, '05, '06 and '07 was 1225, 1347, 1178, and 1158. Let's just call that 1200 sales on average. The data we retrieved from the Orange County website says there were 837 Chapel Hill sales between Jan and August '08. TMLS says there were 1017 in all of Orange County. My data suggests there 384 sales between Jan and Jun '09; adding in the TMLS numbers of 144 for July and 123 for August (assuming, wrongly, that all Orange County sales were in Chapel Hill), that gives 651 total sales. Using that optimistic assumption, volume for 2009 is off by a 45% from 2004-2007.

Condos

June 2007 "The Downtown Economic Development Initiative, a collaboration between the town and Ram Development Co., will bring about 140 condos to downtown. For about $7.25 million, plus the value of the 2-acre site that now houses a municipal parking lot, the town will receive about 160 underground parking spaces to rent to the public."

June 2008 "'Developers are very optimistic risk takers,' said Bernard Helm, president of the Rocky Mount company, which tracks North Carolina housing trends. 'They have to be. While I think there is room for condominium development in exclusive neighborhoods in Chapel Hill, it's going to require some patience on the part of the developers,' Helm said.

"Developers say the town's arduous, often contentious, planning-approval process limits risk.

"'When you build something in Chapel Hill, the market risk is pretty much mitigated, because there's never enough supply,' [East 54's construction company's president] Perry said."

July 2008 "Outside a former Franklin Street gas station, hundreds of developers, dignitaries and potential condo buyers gathered under a big tent last month. After the visitors nibbled smoked salmon crepes, sipped adult beverages and listened to a disc jockey spin adult contemporary music, organizers hoped they would mosey down to a sales center where Ram Realty Services was introducing its 140-unit condominium project, 140 West Franklin.

"The scene sounds so 2005.

"Back then, when easy lending was fueling the housing boom, lavish parties introducing condominium projects cluttered the calendars of developers and potential buyers across the country. Now, amid one of the biggest housing slumps in national history, it may seem difficult to take a pre-sales campaign seriously.

"But Ram and two chief competitors -- East West Partners and Greenbridge Developments -- are betting that Chapel Hill is an oasis of pent-up demand.

"Construction began last year on East 54, off N.C. 54. The project will include 175 condos. Perry expects to sell out by early 2009.

"Ram is so comfortable building in Chapel Hill that it is looking past 140 West Franklin to 345 additional condominiums and townhouses it wants to build. Construction of Ram's Grove Park wouldn't start until at least mid-2009."

November 2008 "Ram Development Co. could break ground on the 140 West condominium project at Parking Lot No. 5 in January. That will erase about 170 parking spaces, including 103 hourly spots convenient to both ends of Franklin Street."

May 2009 "Two years ago, Ram Development Co. was making plans all over town. Now it's unclear whether any of them will pan out as planned.

"As the real estate bubble was peaking, Ram made a deal with the town to invest about $12.5 million of its own money and borrow more than $60 million more to build about 140 condos, ground-floor shops and a public plaza on a Franklin Street parking lot.

"n March, Ram's contract was terminated with J. Randolph Segar to buy the 12.5-acre Town House Apartments site off Martin Luther King Jr. Boulevard.

"Two years ago, Ram proposed another project -- 48 condos, two banks and a 22,000-square-foot office and retail building on Martin Luther King Jr. Boulevard near Interstate 40. Ram had purchased the 13-acre Altemueller tract for $1.8million in April 2006 but sold it last August for $3 million.

"Ram has spent the past year trying to get enough pre-sales to get 140 West Franklin off the ground. This month, the company cut prices on some units by about 10 percent, hoping to entice several dozen buyers before it breaks ground.

"Indeed, two years ago, developers could easily borrow three-quarters of a project's cost -- often while offering little guarantee that their projects would be filled. Today, lenders are willing to offer loans only to those projects where much of the space is pre-sold or pre-leased. Developers who can get commitments from buyers or tenants are often only able to borrow about 60 percent the cost of a project, which would mean Ram might have to double its cash investment.

"There were 19 condominiums sold in all of Orange County in the first four months of the year, according to the Triangle Multiple Listing Services. That's down 70 percent from the same period last year.

"Town Council member Bill Strom, who helped to negotiate the contract allowing Ram to build the mixed-use complex, hopes the company will proceed. 'I can't speculate on what their business model and plan is,' Strom said. 'But I can't imagine that this is a great time in the real estate development industry,' he added.

September 2009 "First impressions are lasting ones, as the saying goes. But in the case of Bill Strom, the last impression may be the one by which he is remembered.

"Mr. Strom recently submitted his resignation from the Chapel Hill Town Council. He is leaving here for somewhere. These things happen. People move on and sever ties and obligations. Usually, they share their goodbyes and collect thanks. Then, life goes on without them.

"But Mr. Strom didn't make a clean break. Although he sold and moved out of his home a couple months ago, he didn't get around to resigning until August 1. If he had quit just two weeks earlier, Chapel Hill voters would have been able to elect someone to his seat this fall. Strom's timing handed that right to his fellow Town Council colleagues. They, not the voters, will choose the person to fill his remaining term.

"Bill Strom's last official act was to disenfranchise his constituents. Since he hasn't commented, we may never discover his intentions for doing so. But the hue and cry he provoked does reveal expectations Chapel Hill has for its elected officials."

...

*Today's post is an homage to the Housing Bubble Blog

Not yet Case Schiller

From the sales price data I've extracted so far, here's the median appreciation you would have gotten from your house if you bought in various years and sold in 2007.

1992 -- 2.344
1993 -- 2.069
1994 -- 1.977
1995 -- 1.774
1996 -- 1.731
1997 -- 1.673
1998 -- 1.612
1999 -- 1.537
2000 -- 1.550
2001 -- 1.411
2002 -- 1.423
2003 -- 1.278
2004 -- 1.246
2005 -- 1.154
2006 -- 1.079
2007 -- 1.000

I'm looking at house re-sales. The difference in price between two transactions of the same house. Two sales define a "Price Pair". Price pair analysis avoids a lot of annoying variables, like the size or quality of the house, the size of the lot, etc. Price-pairs are what Case-Schiller use. I'm trying to compute a Case-Schiller index for Chapel Hill.

Anemic Sales

Sales volume is way down.

June sales in 2004, 2005, 2006 and 2007 were more than twice what they are were this past June. 2008 was a weak year. 2009 is dramatically weaker than 2008.

Volume will not return until prices drop.

...

About the data:

A good friend and regular commentator in the CHBB forums, Kral, spent an evening with me and created a fantastic set of python scripts to crawl the Orange County land records web server. We now have all 110K transactions for Chapel Hill properties that are digitized on their server. Some records date back to 1952, but I'm skeptical that the county has digitized every transaction since then.

The records seem complete from 1990 on.

I have filtered this data to exclude transactions where:

1) the last name of the seller and buyer are the same
2) the number of logged tax stamps is 0 (the property changes hands without any money changing hands)
3) the buyer is an "llc" or an "inc" or a "realty" or an "etal"

I then look for months with huge outliers in the number of sales. I've added extra filters for "82 magnolia chape"l, which bought 245 units back in June of 2007, one for "brookstone drive" which bought 226 units in an apartment complex on Homestead Rd back in June of 2005, one for "g&i vi ramsgate lp" which bought 189 units on 54 back in March 2008, and one for "mustard seed chambers" which bought 102 units on Westbrook drive in September of 2006.

I don't put much faith in the July 2009 transaction count, since I believe there to be substantial lag between the time a sale closes and when it registers in the Orange County website. Kral and I will run the crawler again next month and see if anything changes for either June or July 2009 sales.

Isn't it refreshing to see these plots? Don't you hate the way the NAR (the National Association of Realtors) keeps all their data to themselves?

The claim "Real-Estate was hot in June" can be "true" in that there were more transactions in June 2009 than there were May 2009. But you can see from this histogram that sales in June are always greater than those in May. And you can also see that sales in June are off 50% from their bubble-year highs.

The NAR is all about misleading buyers into believing that now is the time to buy. A broken clock is right twice a day.

Free Money is Addictive

XXX Homestead Road $162/sqft. Asking $364,900.

This home was foreclosured upon in July. I wouldn't call it a bargain at its price. This is however what its previous owner paid for it when she bought it in 2002. When it was bought in 1997, it sold for $130K. It nearly tripled in price in 5 years. (Just because Case-Shiller marks 2000 as it's reference "100" point doesn't mean the bubble started in 2000.)

Todays owner debtor suffered from a terrible addiction to free money. She returned to the free money tap every year for another $20K:

05/31/2002 -- purchased for $365K
Corporate Lenders Investment Group -- First Mortgage for $292,000
Southland Associates w/ Central Carolina Bank -- HELOC for $36,500
$73K downpayment, but only $36.5K were frozen in the house.
Effective percentage down payment: 10%

(Barely one year!)

06/03/2003
Southland Associates w/ Central Carolina Bank -- HELOC extended to $66,000

(Almost a full year, almost!)

06/02/2004
Southland Associates w/ Central Carolina Bank -- HELOC extended to $85K

(She only held out half a year)

12/01/2004
Corporate Investors Mortgage Group -- Refinanced the first mortgage to $310K

(w00t, she made it for longer than a year!. "Two packs a day, but I'm cutting back.")

12/28/2005
Sun Trust HELOC for $100K taking over the $85K debt from Southland Associates w/ Central Carolina Bank.

By the start of 2006, she had $410K worth of debt and no equity. The owner held out for three years before defaulting somewhere around February, at which point she lived rent free until her house was sold at auction. The Corporate Investor's Mortgage Group seems to have been a shell company for a single investor. I'm not sure. This investor bought the property at auction for $321K. He must think that someone would be willing to pay $365K for this house again.

It's unclear to me what happens to Sun Trust's $100K. In California, only the first "purchase money" loan is "no-recourse" following a foreclosure. Other loans, like HELOCs are not. If this were California, then Sun Trust would retain the legal right to sue our addict for the $100K she owes.

Our addict has found rock bottom having been evicted from her home and she still has $100K hanging over her head.

Prime real estate

What part of Chapel Hill would you think the most expensive? Location seems the most important factor, and proximity to the University being pretty much the only metric of location quality. That leaves the area south of Cameron to the west of the University, and of course, Franklin street, in that old-growth stretch past the East End before it starts steeply down hill.



8XX E Franklin Street $175/sqft. Asking $740,000 for 4,214 sqft. Unsold for 175 days.



7XX E Franklin Street $411/sqft. Asking $3,350,000 for 8,144 sqft. Unsold for 62 days.

I've left the first digit intact on these two properties because I wanted to emphasize that these houses are a block apart. One is significantly more expensive than the other. 2.3 times as expensive per square foot. I think the cheaper of the two has a better chance of selling. It goes without saying, of course, that multi-million dollar properties are often on the market for a year or longer and that the 7XX E Franklin property is in the earliest phase of its' time on the market. However, the 8XX E Franklin property is not outlandishly more expensive than most Chapel Hill houses. Yet it languished on the market all summer.

Whatever the 8XX property sells for should set a ceiling for every other property in Chapel Hill. Southern Village's $200/sqft? I don't think so.

Triangle MLS reporting

How does the Triangle Business Journal cover the July sales figures posted by the Triangle MLS?

"MLS: Triangle home sales heat up in July"

Across the triangle, more houses sold in June than in July CORRECTION July than in June, so the story title makes you think that real estate is HOT. They don't mention that sales are always higher in July than they are in June. Nor do they mention that sales for Orange county in particular were less in July than in June.

Of course, after the headline, they have basically nothing rosy to report. Sales volume is down double digits YOY in all the counties counted as part of the triangle. Dollar volumes are also down double digits. (Median sales price is down, but median sales price is a worthless metric as the mix of what price ranges are selling is in high flux.) Total sales for the year are down 25% so far.

Orange county is bucking the trend

The Washington Post currently is leading with a story that July home sales are up 5% YOY (and 7% from June). Nationally, prices have been falling. As prices drop, demand increases. This is a natural response; it doesn't mean we're necessarily at the bottom when volume increases a bit, especially when volume up until now has been at historic lows. It just means that we're closer to the bottom than we were before... that's not saying very much.

But Chapel Hill prices have not been falling. So what's happened in Chapel Hill?

The Triangle MLS reports a 13.3% YOY drop in volume for July for Orange county. Orange county is bucking the national trend. Indeed, July sales (144) were fewer than June sales (149).



Because prices aren't falling, sales volume is getting worse. This is pretty clear; Chapel Hill is not near the bottom.

Valley Park Condos

XXX Valley Park Drive. $284/sqft. Asking $185,000.

I spent a summer living in the Valley Park Apartments years ago. I shared that tiny two bedroom apartment with a friend of mine. It was cramped, the kitchen was tiny. My friend had TiVo, which made up for a lot. That, and my portion of the rent was only $300/month.

Recently, the apartments were converted into condos. The kitchens were remodeled. They now have the tiniest work surface I've ever seen in a kitchen. BUT that tiny strip of counter top is custom granite. Ooooo. Granite.

When I was surfing Realtor.com this spring, I saw them go up for sale and thought, "who would ever pay for that shithole?" Well, the original offerings disappeared from Realtor.com shortly after they went up. I drove by this evening, and sure enough, there are people living there.

Except, Orange County does not have any record of these condos having been actually sold. Only today's property is listed. The other condos, when they were listed in December '08 originally listed for $195K. If they really did sell for $195K in May (when they disappeared from Realtor.com), then why is this one being listed for 10K less?

I have a feeling this apartment-to-condo conversion is now in its second phase: condo back into apartment.

*Correction*
Two of the nine do have recorded transactions on the Orange County public records website. One of the two deeds-of-trust lists 4 people on the loan (all with the same last name) and makes reference to "rent" several times. I have a feeling these four people bought this property as an investment and are renting it out. The place rented for $600 / month when I lived there; I would hope they can get a lot more so that they can cover the expense of the mortgage.

Foreclosures on google maps

CalculatedRisk pointed out that google maps nowdisplays foreclosure data. The data that google is displaying comes from various points in the foreclosure process. NODs, NTSs, & REOs all show up on this map. So I had to take a look: what's in the pipeline for Chapel Hill?

Here is a map for the 27514 zipcode.



There are hardly any on the map. I'm surprised.

Compare that with 10 miles away in Durham



How can one interpret this?

a) Chapel Hill will be immune to the housing bust because the schools make it special.

b) Because foreclosures won't deflate the bubble, Chapel Hill's deflation will take a long time. But with Durham properties just up the road foreclosing, their prices will deflate. There will be a sharp price gradient between Durham and Chapel Hill, one that cannot be explained by Chapel Hill's schools (since that difference is already priced into the market). This price gradient will slowly erode Chapel Hill's prices.

What do I mean?

Let's say the school system allows Chapel Hill to command a 20% premium over Durham; a 100K house in Durham would cost 120K in Chapel Hill. This price difference existed before the bubble began. Both Durham and Chapel Hill see 75% appreciation during the bubble; the Durham house rises to 175K and the Chapel Hill house rises to 210K.

Now, due to foreclosure pressure, the Durham house returns to it's pre-bubble price of 100K, but the Chapel Hill property remains at 210K. Can Chapel Hill pretend that it should now command a 110% price premium over Durham?

So, I look at these two maps and I see depreciation in the future for both Durham and Chapel Hill; but Chapel Hill's depreciation will be slower. Terrific. We'll drag out the negative consequences of this stupid bubble for even longer.

I'm going to post more news links

I'm going to try and increase the links-to-news content, which means, I'm not always going to post when I have a house that I want to point out.

Sometimes, it'll just be a link to an article.

Like this one:

"The vacancy rate in the Triangle’s apartment market hit a five-year high of 10.4 percent in July, according to a report released Thursday by Real Data Apartment Market Research.

That’s up from 9.2 percent a year ago, according to the report, which comes out twice a year.

...

It’s also lowered rental rates, which have fallen by almost 10 percent in the past 12 months – to an average of $760 per month from an average of $787 per month."

Priced to comps

XXX Pebble Springs Road, $155 /sqft, Asking $399,900

Todays property costs 50% more than it did ten years ago. In fact, it did all of its appreciation between 1999 and 2005 when its current owners bought the place. If it sells for its asking price of $399, then since 2005 when it was purchased for $362, this house has merely been keeping up with a 2% inflation. Today's asking price is reflecting a "return" to 2005 pricing. However, I think the bubble will deflate to '99 pricing or somewhere thereabouts, before toxic exotic financing took over. If I'm expecting a return to 1999 pricing, then the house should cost $318K in 2009 dollars (20% higher than its $265 selling price).

But alas, housing prices are sticky. Its owners owe $330K, so they're in no hurry to set a $318 price tag. Furthermore their neighbors have had success moving their properties at the similar $/sqft.

Recent closed sales in Springcrest:
7/7/09 -- 410K for 2549 sqft = $161 / sqft
7/2/09 -- 397K for 2500 sqft = $158 / sqft
6/15/09 -- 480K for 3477 sqft = $138 / sqft
6/2/09 -- 390K for 2400 sqft = $162 / sqft

This property will have no trouble appraising at $155/sqft; someone with a good credit history and a $80K down payment would have no trouble closing on this house.

CalculatedRisk has been waffling recently on how much housing prices have left to drop before the bubble has run its course. The summer selling season has seen a seasonally-expected uptick in volume, which is at least better than continued volume drops against seasonal expectations. However, this slight increase does not mean that bubble-era "normalcy" has returned. The papers are trumpeting this increase loudly, and it may produce an unfounded sense of optimism.

Chapel Hill is only seeing a return to 2005 pricing. We have a long way to go.

Rental Parity II

XXX Presque Isle Lane $153/sqft. Asking $250,000

Yesterday I promised to show an example of rental parity that's already arrived in Chapel Hill. According to IriveRenters criteria, someone looking to either rent or buy this house should buy it. It's a little cheaper to buy than to rent. If it is cheaper to buy than to rent, then rational market participants should snatch up this property. There should be a price floor at rental parity.

So are we at a price bottom? I don't think so.

Today's property may be rented for $1500/month or mortgaged for $1656/month*. Another house a few doors up may be rented for $1600/month so I would guess that the $1500/month rental rate is pretty accurate.

*Assuming a 5.5% 30-year fixed rate mortgage. Accounting for the tax breaks, the total cost of ownership is $1364/month.

The problem is that today's owners couldn't afford the house at that price. They took out a first mortgage with Central Carolina Bank for 80% of the 265K purchase price in 2004. The took out an immediate HELOC to cover another 10% of the purchase price. They put only 10% down but today's buyer will have to put 20% down. In 2008, the owners refinanced their HELOC with Bank of America to $38K. Assuming they fully tapped their HELOC, they owe $249,950, explaining the $250K price tag. Todays sellers can't negotiate lower.

But bad financing aside, why don't I think today's price for this house is the bottom? Because the monthly cost of ownership hinges on a 5.5% interest rate. When interest rates go up, then buyers for this house would have to pay more per month. If you assume that the buyers today and the buyers tomorrow are the same people making the same ammount, then they can't afford a higher payment. Therefore the demand for the house at todays price point lessens. To match the demand for this house, the price must drop.

If you're buying today at a 5.5% interest rate, then 5 years from now when you want to sell to someone who gets an 8.0% interest rate, then the principal has to drop 17%. (Plug 100K as the price for a house with a 5.5% interest rate into the IHB Calculator, the monthly payment is $662. Plug in 83K as the price for a house with a 8.0% interest rate and the monthly payment is $660). Congratulations, you lost 85% of your down payment.

Rule of thumb: You want to buy when mortgage rates are high. You want to refinance when mortgage rates are low.

Remember, you can refinance your interest rate, you can't refinance your principal.

Rental Parity

XXX Worth $175/sqft. Asking $978,000.

IrvineRenter was one of the first people to publicly announce in 2007 that the housing market was in a bubble. That's when he started his blog, at least. His basis for this conclusion was that it was cheaper to rent than to own. Properties in Irvine had inflated to a point that the monthly mortgage payments were more than the properties could fetch as rentals. Home owners (home debtors) were the ones throwing their money away.

The price point at which IrvineRenter stated he would enter the market was rental parity. Rental parity denotes the price at which it is equivalent to rent or own the property; a break-even point. If you're thinking in terms of "monthly payment" where you factor in the tax incentives and the upkeep costs into the mortgage payments and the home owners insurance payments, then that monthly cash outlay would be equal to the monthly rent someone would be willing to pay.

Since figuring out what the monthly payment is on a house is complicated, IrvineRenter has created a calculator to crunch the numbers for you.

Today's property is both for sale and for rent.

It's really a beautiful property, though, I don't know what a million dollar house should look like.

You could either rent at $3,800/month or buy for $5,438/month*. Plug in the numbers into the calculator. It's cheaper to rent this property than to buy. If you buy this home at this price, you're throwing away your money.

*Assuming a 5.5 30-year fixed rate mortgage.

This house is in Chatham county, so I don't have access to the property records. At least, I haven't started trying to figure out the Chatham county records yet.

...

We're at an interesting point in the deflation of this housing bubble. Some properties I've looked at have deflated to rental parity. The reason seems to be that interest rates are at historic lows. In my next post, I'll run the numbers on a house that's currently at rental parity with a 5.5% mortgage, but that would not be at rental parity at a higher mortgage rate.

Foreclosure in the works

XXX Tinkerbell Road $151/sqft. $389,000.

I'm going to predict that today's property will end up in foreclosure. The "owners" owe $368,037 on this property which they purchased a year and a half ago for $296,500. To avoid a shortsale/foreclosure situation, the owners have to get at least $143/sqft.

In their neighborhood, two houses just sold:

6/30/2009 -- 421 Tinkerbell Road. $119/sqft. $222,350 for 1862 sqft.
6/26/2009 -- 508 Colony Woods Drive. $100/sqft. $233,000 for 2367 sqft.

The next most recent sale in this neighborhood was back in May.

A third house is currently listed for $100/sqft. It's larger than today's property. It's also a few years younger (1968 vs 1962). This third house is priced to sell, and it will. Its owner even stands to make a profit.

When this third house sells, there will be three perfect comps -- comparison sales -- for today's property which an appraiser will use to measure the value of today's property. If the appraisal comes in at $119/sqft (generous), then the bank will only loan $243K. The buyer would have to put up a $143K down payment. If the appraisal comes in at $100/sqft (likely), then the bank would only loan $204K and the buyer would have to put up a $183K down payment. I don't think there are buyers with that much money saved who will consider this property.

The owners of today's property purchased the house in January of 2008. They payed the previous owner $296,500 in February 2008, but took out a 332K loan with BB&T. I don't understand why the bank wanted to loan 112% of the property value. Apparently, First Medallion Bank didn't think this was unreasonable and so they allowed the owners to refinance in December 2008, into a $346,800 loan. Then in January 2009, they took out a second mortgage from Kingsford Home Improvements for $21,237. Ahh. Serial refinancing. Did all that extra cash go to good use?

From the picture of the kitchen, it looks like they put in a granite counter top. The cabinets look new, but are ugly. I'm guessing the flat top range was installed as well. I personally dislike the idea of flat-topped ranges. They certainly didn't make the kitchen larger, it looks tiny. Maybe there are other improvements they made to the rest of the house, but then, why aren't they showing them in the pictures (there are only four), or at the very least, including a description of them? Geez, any description at all would be nice.

These owners intended to flip the house. Instead, they're going to get burned.

As good as sold

XXX Canterbury Lane $296/sqft. Asking $999,000.

Todays owners have been in their house since 1991.

In 1991, they bought the house. The county's stamp-tax records are incomplete. They took out a $55K 15-year mortgage with Wachovia

In January 1999, they refinanced with the State Employees Credit Union (SECU) for $75K.

By December 1999, they were ready for a little more of that delicious MEW, so they opened a HELOC with SECU for $100K.

It looks like they tapped $75K of that $100K HELOC since in November 2007, they refinanced with SECU into a $150K mortgage.

So far, they are $150K in the hole for a 3300 sqft house. That's less than $50/sqft + whatever down payment I don't have record of. These owners are expanding their debt through the bubble years, but still not going crazy, at least by Irvine CA standards.

They put their house on the market in March of this year, 118 days ago.

And now, the WFT portion of our story:

In May, they opened a $530K HELOC from Harrington Bank. WTF? The house is already on the market, can't you just wait until it sells to spend that equity? If they tapped that HELOC, then they're $680K in the hole.

I just can't figure out why someone would do that. $530K is not a small amount of money. $530K is the price of another house. Did our current owners pay cash for another house with debt from this house? (Is that really paying cash?). Is it really wise to spend the profits of a home sale before the sale completes?

If they sell at their asking price, they stand to make a fortune. They would get $220K in addition to whatever portion of the $530K HELOC they haven't already spent. But who is going to pay $300/sqft for this house?

Tally: 1 for 5

I've now looked at the debt history for 5 houses, and it's only been the first one that I looked at that showed evidence of mortgage abuse.

XXX Westbury Drive $119/sqft. Asking $400,000

Today's property was purchased in 1992 by its current owners for $235K. At the time it was $70/sqft. It looks like they put 65K down and had a mortgage of ~$175. In 1999, they refinanced to a ~$185K. In 2004, they refinanced again to ~$213K -- and it appears to have been into a fixed-rate mortgage at that! This refinancing does not qualify as serial or abuse.

If these owners have to drop their price by $50K, then they still walk away with an additional $122K in profit (well, $98 after the realtors take their 6% cut) -- that's beyond the $38K they already extracted from their two refinancings. What's funny is that, in spite of having so much of an equity cushion, these owners have not dropped their price to move the house (I don't know how many times they dropped the price, they likely have, all I'm claiming is that they haven't dropped it sufficiently to move it); the house has been on the market for 233 days. Besides that previous bit of snark, all I can say about these owners is that I wish I were in their situation.

...

One thing that's confused the hell out of me as I've been looking at properties around Chapel Hill: there's no clear price per square foot that sellers list for, and there's no clear price per square foot that buyers are willing to pay. Sometimes, it seems like $160/sqft is the average, but then you have places like Sothern Village and Meadomont that are nowhere near the same price. It vaguely looks like many sales are occurring at the $140/sqft range. Today's property is cheaper than that, though. Why hasn't it moved? Certainly it is a big house and I hear it's now in vogue to buy a smaller house, but at it's current price, it's a much better deal than a lot of other properties I've seen on the market. I can't figure out why it would have remained unsold for so long.


Mortgage abuse tally: 1 for 5. 20%.