Falling prices trap new homebuyers

The Orange County Register ^ | December 13, 2006 | JEFF COLLINS

[GodGunsGuts]

Wednesday, December 13, 2006

Falling prices trap new homebuyers

Neighbors in a new Garden Grove tract say a developer's plan to slash prices by about $140,000 has left them owing more for their homes than they're now worth.

By JEFF COLLINS

The Orange County Register

[wtc911]

A typical 'balloon' mortgage would have a thirty year schedule being paid for fifteen years and then a single 'balloon' payment for the second fifteen years.

For example...a $90k balloon loan for thirty years at 10% would have a monthly payment of @ $750 whereas the same loan for 15 years might have a monthly payment of @ $1,200. The buyer takes the thirty year to get the lower payment but must pay-off all the loan in payment number 181. That outstanding amount would be @ $78k.

The buyer is gambling that he will be able to refinance the $78k at a lower rate. If he can't he is screwed.

[FreedomCalls]

MLS# 2273597 - East Orange, NJ
Previous Price $279,000
List Price $209,000 (Price Reduced 25.1%)

MLS# 2280783 - Jefferson, NJ
Previous Price $278,000
List Price $209,900 (Price Reduced 24.5%)

MLS# 2273449 - Glen Ridge, NJ
Previoius Price $499,000
List Price $389,900 (Price Reduced 20.1%)

MLS# 2216089 - Franklin, NJ
Original List Price $1,300,000
Previous Price $1,231,000
List Price $991,000 (Price Reduced 19.5%, 23.8% off OLP)

MLS# 2259487 - West Milford, NJ
Previous Price $197,000
List Price $159,900 (Price Reduced 18.8%)

MLS# 2271647 - Morris Twp, NJ
Previous Price $1,199,000
List Price $974,900 (Price Reduced 18.7%)

MLS# 2276318 - Millburn, NJ
Previous Price $4,500,000
List Price $3,725,000 (Price Reduced 17.2%)

MLS# 2268887 - Hoboken, NJ (Shipyard)
Previous Price $879,900
List Price $729,900 (Price Reduced 17%)

[Mr. Jeeves]

Multiply all of your numbers by 10 and you have a very typical Bay Area mortgage scenario. The usual reset or balloon payment is 3 to 5 years out, though.

[finnman69]

As I watch those flip my hosue shows I keep thinking, the quality for the workmanship is so superficial, geared for the quick sell.

But there are always suckers willing to pay inflated flipper prices for the work they dont want to do themselves.

I just one flipper team struck me as really foolish. They sank $85K into a $100K house for $25K profit. Seems very very risky to me.

[FreedomCalls]

A house is worth exactly what someone else is willing to pay for it.

Unfortunately, I have to pay taxes on what the tax assessor thinks it's worth.

[bondjamesbond]

Its worth seems to matter a great deal to the county tax assessor and I have to pay him what he says.

The county taxes are set by the county government. If your county government is taxing you too much, you should elect people who will not tax you that much. But electing Republicans just because they are Republicans isn't going to do it, anymore. Today's Republicans seem to love tax money even more than Democrats do.

If a county requires $100,000,000 dollars to run, and has 50,000 houses with a market value of $100,000 each, it can raise the required money by taxing the houses at 2% of the market value, or $2,000 each.

Now if the market value of houses doubles to $200,000 each, the amount of money it requires to run the county does not necessarily change. The county still needs $100,000,000, and can raise that money by taxing houses at 1% of the market value, or $2,000 each.

So if the County Assessor is going to reassess properties to reflect the current market value, the county government should reduce the property tax rate to compensate, so no excess money is taken. If they aren't doing this, the citizens should be rightly outraged, and replace them with politicians who will.

Alternatively, the County Assessor could not reassess properties to reflect the current market value, but rather use a formula that is not market based. That way there is no need to change tax rates to reflect fluctuating market conditions.

[UpAllNight]

It's a TV show.

[Joan Kerrey]

yep..... and I noticed it's not thier fault. It's the developer's fault. It's always somebody elses fault.
-----
Bush conspiracy?

[wtc911]

So while it may seem unfair to base property taxes on what someone pays for their homes, it is really the only fair way.

----------------------------------------------

The problem there is that the cost of the services paid for by the taxes keeps rising. I agree that retirees should see a freeze but I disagree that tax rates should freeze forever based on the purchase price.

I bought my first home in my twenties. Within ten years my earnings had doubled and ten years later doubled again. That is the case with most of us. Had my RE tax remained the same throughout then my newer neighbors would have been subsidizing me.

[RockinRight]

It's insane.

The average income in LA County is about $44000 and the average house is over $400k IIRC.

In Summit County, Ohio the average income is about $40000 and the average house is $135k.

[Xenalyte]

That would be why the family was characterized as "the family of flippers on 'Flip This House.'" :)

[WesternPacific]

We did the same thing as your friend. We hit the Vegas market at the same time and also doubled our investment within two years. We bought a lake house in East Texas. People who came into the Vegas market after we did didn't fair so well. Some did get stuck and some are still there waiting. You are right when you said timing is everything and luck.

[Larry Lucido]

Am I missing something? Prices are ultimately set by buyers (no willing buyers, no high prices). These buyers drove the prices up by their own bids, and they now complain that they overpaid????????????????????????

Beam be back up, Scotty.

[RockinRight]

After 15 years, almost ANY market would have some appreciation. Not being able to refinance that 78k would be due to credit or employment issues only, and worse came to worse, they COULD extend back to 30 years in the rare instance they couldn't afford any other option.

A fifteen-year balloon is NOT the same as the types of loans we're talking about here.

Hardly anyone does balloons anymore anyway.

[Larry Lucido]

Ah, I got it now. They buyers who overpaid are now complaining the the current generation of buyers isn't as STUPID as they were. Yep, they do have a point.

[RockinRight]

I dunno, I think many of them do a superb job.

Some do very bad jobs too, though.

[Toddsterpatriot]

... and when profits at lending institutions start to fall dramatically due to these desperate measures, how is Wall Street going to react??

Their stock prices will fall? So what?

[FreedomCalls]

So if the County Assessor is going to reassess properties to reflect the current market value, the county government should reduce the property tax rate to compensate, so no excess money is taken. If they aren't doing this, the citizens should be rightly outraged, and replace them with politicians who will.

Where can I get some of these politicians who will act like that? They are in short supply around here. ;-)

[linda_22003]

"There's nothing wrong with Ohio,
Except the snow and the rain;
I really like Drew Carey, and I'd love to see
The Rock n' Roll Hall of Fame."
-- Bowling for Soup

[wtc911]

Not being able to refinance that 78k would be due to credit or employment issues only,

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Can uou accurately predict the interst rate fifteen years out? I can't. I do remember the Carter years though.