Author: SavedbyGrace
May 28, 2008
| Asking Price | $1,298,000 | ::: | Sq-ft | 3,424 |
| Purchased Price | $700,000 | ::: | Lot Size | 7,500 |
| Purchased Date | 10/22/2001 | ::: | Beds | 5 |
| Days on Redfin | 2 | ::: | Baths | 4.5 |
| $/Sq-ft | $379 | ::: | Year Built | 2001 |
| 20% Downpayment | $259,600 | ::: | Area | Baldwin Stocker |
| Income Required | $324,500 | ::: | Type | SFR |
| Est. Payment* | $6,562/month | ::: | MLS# | A08076815 |
*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%
This property was purchased for just $700,000 back in 2001 when it was a new construction. According to PropertyShark, the seller put $200k (or 28.5%) down at the time of purchase. At 3%, 4% and 5% annual appreciation, it would now be worth $850,290, $906,103 and $964,992 respectively. Instead, it’s currently being listed for $1.298MM — a $598k gain over about 6.5 years.
Rental equivalents are a great way to gauge the market because they’re based off fundamentals and directly tied to income. When home prices are tied to income, it suggests stability and sustainability. As of yesterday, Craigslist didn’t have any 5 bedroom homes for rent in Arcadia, but I doubt the rental market is anywhere near $6500/month for a SFR in the Baldwin Stocker area.
Surely there are families who have $260k for a 20% downpayment and an annual gross income of $325k, but how many of them are out there actively looking for a house in this neighborhood? How many of them can qualify for a loan in today’s tough market? Furthermore, how many who can afford the payments actually like this cookie cutter stucco box? Yes, the seller only needs to find one such buyer, but I go back to my point that buyers must be both willing and able to purchase a property for the sale to go through. There has been a lot of discussion in the comments lately about the Asian rescue scenario and I maintain my position that this phenomenon will not save Arcadia nor any other SGV city.
Some observation on Asian rescue scenario:
I believe most of the bubble era Asian buyers, like Taiwanese or Chinese, were willing and active participants of the RE speculation. The rampant buying was also aided by the real estate and stock market bubbles in Taiwan, and especially in China.
Most of these speculators are astute and they cetainly will not through money away except a few that have easy or corrupt money. They are also being squeezed by the deflating assets they own in US as well as back home in Taiwan and China.
This real estate bubble indeed was global in scale.
Hey George8, with 1.3 billion people and growing, I am afraid more than a few PRC Chinese have access to easy corruption money. Many MacMansion buyers in Arcadia are Chinese govt officials (or their children), or rich coal mine bosses (or their family), who easily make over $1 mil USD per month. So long as China continues to be the “factory to the world,” the booming economy will continue to enrich the coffers of well connected individuals in that country. Unlike the majority of frugal, self-made immigrants, this special group from the PRC are spendthrift (especially their children)and care little about bargaining. Their demand for Arcadia MacMansions will continue to keep $$$ high until the slowing global economy become a big drag on the Chinese economy. Given the skyrocketing commodity prices, it may just happen in the near term.
If these folks and their spoiled children are going to take over Arcadia, then you can count me out of the buyer pool because I wouldn’t want to live next to them.
Stop buying from Walmart already! Great point about the commodity prices; I’m waiting to see what happens as gas passes $4/gallon and on the move to $5/gallon.
I fully agree. It is sort of pleasant to do business with corrupt officials and their family members (especailly the spoiled children) because they don’t bargain. But it’s an entirely different scenario to have them as your next door neighbor!
I doubt it that Arcadia will get a lot more (net in flow) of this type in the near future. Irvine is getting more of this type nowadays. Even then, the bubbly money, clean or not, is simply disappearing.
No one is saying that the Asian buyers will “save” the SGV housing market. But it does add one more layer of buyers that have money to buy in this area that probably would not buy elsewhere. So maybe we see another 10% downside instead of 20% downside if these pool of Asian buyers did not exists.
True, but you’re assuming that these Asian buyers are willing to buy in this market. Perhaps some are, but I think those will be the exception rather than the norm.
By the same token, if Asian buyers were present during the runup, they are part of the excess inventory as sellers too. What, Asians don’t sell? Can’t have it both pays, puckhead.
Tim K,
You’re assuming that most of the buyers that bought in the bubble years will sell, I have a hard time believing that. When I bought my first house during the last RE bubble, I was underwater for about 5 years but I held on because the payments were manageable and I liked the house. I think most in the better areas will do the same during this bubble. Another thing you have to consider when you walk away from your house is what kind of work do you do. If you’re just another schlub working at a large company, then there’s not much of a downside. But if you own your own business and you need access to capital from banks and investors, then you might think twice about walking away from a house.
Everyone’s situation is different, but it was easier to hold onto property (even underwater property) during the previous boom because interest rates were dropping during the bust. That allowed them to refinance to lower payments if needed. This time around, interest rates are likely to increase later this year – making it difficult for distressed owners to hold on.
Surely owners who used conventional 30/15yr fixed financing can choose to hold on, but that may not be an option for all those who used creative financing.