Infatuation — Rod Stewart
Remember during the bubble rally when everyone was in love with real estate? Turns out it was an infatuation. The fickle homeowners who sought to possess real estate at any price are now dumping their lovelorn properties en masse. Of course, it is easy to become infatuated when something or someone is making your dreams come true. All people had to do was buy a property and begin extracting and spending all the free money it provided. Now that the market has reversed, and people are saddled with crushing debts, and the property is no longer providing free money, it is easy to see why the object of their infatuation has lost its luster.
Today’s featured property is another casualty of the low end of the market. There is much less denial at the low end, and much more carnage — for now. The married woman who bought this as her sole and separate property has some of her own money in the game, so she showed more resilience than those who bought with 100% financing. You see, with any market price collapse, it starts with the weakest hands — those that paid way too much and have little incentive to hold on. When these people sell, it drives prices lower and distresses a whole new group of market participants — people like today’s owner that have some money in the game, but not very much. The people who put 5%-10% down who are currently underwater will be the next group to give up. Of course, this will distress those who put more money down or purchased even earlier. Eventually, all of those who are overextended or deeply underwater will give up and capitulate to market forces.
Income Requirement: $88,680
Downpayment Needed: $70,944
Monthly Equity Burn: $2,956
Purchase Price: $525,000
Purchase Date: 10/11/2006
Address: 22 Claret #42, Irvine, CA 92614
Beds: | 2 |
Baths: | 2 |
Sq. Ft.: | 1,145 |
$/Sq. Ft.: | $310 |
Lot Size: | – |
Property Type: | Condominium |
Style: | Cottage, Craftsman |
Year Built: | 1980 |
Stories: | 1 Level |
Floor: | 1 |
Area: | Woodbridge |
County: | Orange |
MLS#: | S544801 |
Source: | SoCalMLS |
Status: | Active |
On Redfin: | 1 day |
New Listing (24 hours)
|
kitchen, detached 2 car garage! Eat in kithcen, inside laundry. 2nd
bedroom is a den and currently being used as a 2nd bedroom.
Chateaux Condo? What kind of pretentious bull$hit is that?
The fact that the garage is detached is something to get excited about?
kithcen?
2nd
bedroom is a den? So this isn’t even a true 2 bedroom…
If this property sells for its asking price minus a 6% commission, the total loss on the property will be $191,563. The seller will be losing her $105,000 downpayment (or $55,000 if she maxed her HELOC,) and IndyMac (now us taxpayers) will be losing the rest.
I posted the chart below on Monday, but it is worth a more careful look. If you really want to understand the housing bubble psychology demonstrated by today’s losing speculator, it is encapsulated in the figure below.
Behavioral Finance Theory
The whole point of boiling down posts to laughable ideas like infatuation is to underscore the psychological aspects that inflated the bubble. There is no rational justification for paying $525,000 for this property other than you believe it will continue to appreciate in price. Collectively, the more people that believe in perpetual appreciation and act on those beliefs, the more prices will rise. This does require enabling on the part of lenders, and with the virtual elimination of standards during the bubble, there were no barriers to market entry, and no limits to how high people could bid up prices. It was incomprehensible to people in 2006 that prices could drop 50%. Surely if prices had detached from fundamentals, they couldn’t have detached that much. Well, they can, and they did.
I hope you have enjoyed this week at the Irvine Housing Blog. Come back next week as we
continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.
🙂
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Early in the morning I cant sleep
I cant work and I cant eat
Ive been drunk all day, cant concentrate
Maybe Im making a big mistake
Caught me down like a killer shark
Its like a railroad running right through my heart
Jekyll and hyde the way I behave
Feel like Im running on an empty gauge
Oh no not again
It hurts so good
I dont understand
Infatuation
Infatuation
Infatuation
Infatuation
Infatuation — Rod Stewart