Highland History & HELOC Abuse

1518 Highland Oaks Dr.


Asking Price $1,198,000 ::: Sq-ft 2,435
Purchased Price $402,000 ::: Lot Size 0.45 acres
Purchased Date 10/16/1992 ::: Beds 3
Days on Redfin 11 ::: Baths 2.25
$/Sq-ft $492 ::: Year Built 1951
20% Downpayment $239,600 ::: Area Highlands
Income Required $299,500/yr ::: Type SFR
Est. Payment* $6,057/month ::: MLS# A08042694

*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%

On the surface, this looks like any other overpriced listing. There was nothing special that caught my eye except for the rather large price drop in the previous post-bubble downturn. This house was purchased for $660k near the peak of the late 80s boom in 1988 and then sold for $402k just 4 years later in 1992. That’s a quarter-million dollar price drop, but I like to view it as 39% off the 1988 purchase price.

Don’t forget folks, 1992 wasn’t even the bottom yet and by comparison, the current housing crisis easily trumps that one. Will history repeat it self? We shall we, but let’s take a look at the current seller’s situation.

Purchase Price $402,000
Purchase Date 10/16/1992
Loan $202,300
Downpayment $199,700

If the buyer was on a 15-yr fixed mortgage, the house would have been paid off last year. Instead of that, the seller pulled out multiple home equity loans. After all, home prices would increase forever and you can just refinance right?

Purchase Price $402,000 (10/16/92)
Refinanced to $650,000 (04/25/05) — $248k HELOC
Refinanced again to $916,000 (06/21/06) — $266k HELOC
Total HELOC Amount — $514,000

Total debt now is now $916,000 after owning the home for 16 years.

Incredible. Instead of being mortgage free and therefore truly a homeowner who’s immune to the housing crisis today, she now owes close to a million dollars to the bank. From the description and pictures, none of the money was used to renovate or update the house. The choice to pull out over half a million dollars in cash to fund whatever lifestyle she lived for the past few years is a great example of the irrational exuberance that characterizes so many Americans.

With comparable 3bed SFR rentals going for $2,695 and $3,000 per month, it’s no surprise that this listing is over-priced. The GRM for this house would be 445 and 399, respectively – well above the 180-225 range where rent-saver buyers would enter the market.

6 thoughts on “Highland History & HELOC Abuse”

  1. From the picture, it looks like a nice house. But the asking price is too high, $916K sounds about right. If it falls into foreclosure and the bank sells it at that price, I will jump in.

  2. I understand that there are people in all walks of life in different situations with different budgets. But golly, are you kidding me?? I guess it’s good for this seller that there are potential buyers out there who think it’s worth $916k. I don’t, but that’s me.

    I also find it incredibly hard to subsidize the frivolous spending of others by bailing them out – which is what will happen if it sells for $916k. That however, has nothing to do with the valuation of a house. I can rent a comparable property for about half the monthly mortgage payments.

    If the refinance to $916k in summer of 2006 was the peak, then a correction of 21% would put it at $723k. According to Dataquick, Feb07 vs Feb08 Arcadia prices have already dropped 21%+. With further declines on the way, I would venture to say that this property could easily fall down to the low 600s in a few years.

  3. AKR, I would bid for 920K, just beat you:-) I guess we both are active home hunters in current Arcadia market.

  4. Haha I love this. Current bids from active home hunters are already $278k or 23% off the asking price. It’s clearly not priced to sell.

  5. AClover You can have it with the extra $4k. That will make me the only active buyer (I guess) on this board at least, so that I can lower my offering price even more.
    SavedbyGrace, I would love to see the low $600s price. But I am afraid that something else, such as the interest rate or the cost of food, may go wrong that makes me not being able to afford it.

  6. I wrote about interest rates vs. purchase price here https://www.arcadiahousingblog.com/2008/02/09/interest-rates-vs-purchase-price/

    Assuming you put 20% down and use 30-yr fixed mortgage, a $650k house ($520k loan) @10% has the same monthly payment as a $900k house ($720k loan) @6.5%. Rates will change over the course of 30yrs, you can’t change the purchase price once you sign papers.

    It’s better to buy when interest rates are high and home prices are low than when interest rates are low and home prices are high.

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