|Purchased Price||$1,158,000||:::||Lot Size||10,880|
|Days on Redfin||78||:::||Baths||3|
|20% Downpayment||$250,000||:::||Area||Santa Anita Oak|
*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%
“note, tenant occupied, lease up 7/31/08, currently leasing for $4,300/mo. can make offer subject to inspection, try longer escrow and take over lease for a few months or close on 7/31/08.”
This property has been on the market for 2.5 months and still has 4 months left on the current lease to the tenant. That means that the owner listed the property for sale a full half a year before the lease is up. The seller must be very anxious about the market to do that. It seems like neither the seller nor many of us here think that home prices will rebound in the coming summer – hence the sale.
I wasn’t able to obtain loan information for this particular property, but it was purchased about a year ago for $1,158,000 just as the subprime blowout started to hit the fan. It’s currently renting for $4300/month. I love finding rental rates because it gives me a direct rent vs. buy comparison.
$1,250,000 / $4300 = 290
I often use the GRM of 180 as a baseline comparison. Some have questioned my use of this arbitrary number to determine house value and I do agree this isn’t the most accurate way to go about it, but it gives a quick gut-check of the numbers. Applying the 180 gross-rent multiplier to the monthly rental rate would yield the following:
$4300 x 180 =$774,000
That’s $476,000 or 38% less than the current asking price. Just to put things in perspective, the difference alone is enough to buy out homes in most other parts of the country. I don’t know about you, but half a million dollars is a lot of money!
Are you wondering how appropriate is it to use this 180 multiplier? Let’s evaluate that. This exact home was sold for $600,000 in 4th quarter of 2000. That was before the crazy boom began so it’s a good starting point to use since the market was fairly stable at the time. If the bubble didn’t exist and I apply a 3% inflation premium to the previous purchase price, the house would be worth $760,062 in October of 2008.
$600,000 x [(1.03)^(2008-2000)] = $760,062
That’s very close to the value of the house calculated with the 180 GRM ($774,000). Does that mean that prices will fall 30-40% or more as the bubble deflates? I can’t say for sure, no one can. Do I think it’s likely to happen? Probably. What I can say for sure is that we’ll hear Lawrence Yun and the NAR call bottom many, many more times before the real bottom actually forms. I’m tired of hearing their lies, but they will continue on their campaign as I will continue mine. I have faith in my readers that they can distinguish the truth from the lies.