When you check the tax rolls of this neighborhood sold at the peak, you can see that many were purchased with the exotic financing that was popular back in the day.
As you can imagine, it has left a trail of broken dreams for sellers – one at the top of the hill with eastern view is still looking for more than $1.1 million for this same floor plan. He probably thinks that the REOs are dumping on price (starting with this one that closed for $789,000).
But the banks and listing agents are conducting auction-like events by putting these up for bid on the open market for a week or so, giving every buyer a chance to purchase. It is the best way to find what a ready, willing, and able buyer will pay – which is the definition of value!
As a result, they are real comps – and buyers are reluctant to pay a couple of hundred thousand dollars more down the street or around the corner:
But buyers will pay more, if you have features that are worth it. The reason that premium properties aren’t selling is because their extras aren’t properly priced.
Jim
If all of these homes have crazy loans bought at the top the what will stop all the neighbors from following suite and handing in the keys? I guess most of the inhabitants have loans larger than the $800,000 value.
When you look at tracts built and sold at the peak, it is staggering to see how many of the original owners are over-encumbered, or close to 100% LTV. It is the majority.
But people keep paying.
Hi jim
With all due respect I have a tough time agreeing that the definition of value is what a ready, willing, and able buyer will pay.
I would consider what a ready, willing, and able buyer will pay, the market price for that day. I feel the value is always higher or lower than the market price.
When I look up “value” on piggington.com or a dictionary I see “relative worth”. I would define value based on its current price to rents relative to ave price to rents, or what it would cost to reproduce the house($150/ft) and buy the land today, or as piggington states its current price to income relative to ave price to income.
As an example, Because my gardener and his $15 an hour collegues could buy a house in Chula Vista with out having any money down(true story) at a 1% interest rate , I do not believe the market price he paid was the value of the homes he bought. In his case the market price he and his cohorts paid was well above the relative value of the home in 2006.
What a buyer will pay could be driven by lax lending, confidence, emotional factors, what their friends are doing, and lack of education. If a swarm of uneducated buyers bid up prices in an area to an insane level would that be the value of the homes in that area.? Or an overpriced market well above value?
This obviously could go the other way when we overshoot the value on the downside and have homes price well below the ave price to rents , and ave price to income etc pricing the homes below relative value. Great articles on piggington
http://piggington.com/shambling_towards_affordability_november_2011
IMHO
I can not afford that house but what about sending letters to those people that have a morgages more than the house is worth?
Where can a person get that?
weak hands are always the first to bail once the tide shifts.A lot of people bought simply hoping to sell fast to the next flipper. We simply ran out of flippers and some people got caught holding the bag. Happens every time at the top of a cycle.
Biker1 Go to the courthouse and you can get the loan data.
you can also get data from title companies on he homes . You will be amazed at the data and how many loans people have in the area you prefer.
Hankster nice link on shambling to affordability. I like the extreme valuation chart wow!
@Hankster … but then again Value is also a fucntion of time/stage-of-life and is subjective to buyer … 30-40 somthing with school-age going kids have a certain “value” to Bay Collection and similar McMansion neighbourhoods. Their perception and/or calculation of Bay-Collection “Value” is typically higher than 60+ empty-nesters who really dont need a 3000+ sqft McMansion near performing schools.