Sunday, January 25, 2009

Knife Catching in Oak Ridge

The bubble term knife catcher includes buyers who buy too early and pay too much thus causing financial injury. Many people bought at the peak and did not used the new and innovative (and now discontinued) financing schemes like no down-payment, pick-a-payment, piggy-back loan, or other type of exotic loans.

There were some unfortunate knife catchers that just wanted the American Dream of buying a nice house for their families. Some played by the traditional rules - 30 year fixed rate loan, 20% or more down-payment, no equity extraction. Yet this group is not immune to financial injury. Those that put the 20% down may have no lost the all that equity just through bad timing. Large losses and financial injury can be devastating for the individual it happens to, and sad for us side-line observers. Which brings us to today's featured property, a buyer who played by all the rules and still lost a lot of money.

Here is the property -
The Front of the House.

The Living Room with Hardwood Floors.

The Kitchen - Granite and Hardwood Floors.
(But no stainless?)

Here is the property info -

  • Single Family Property

  • Status: Active
  • County: Morris
  • Year Built: 2006
  • 4 total bedroom(s)
  • 2.5 total bath(s)
  • 2 total full bath(s)
  • 1 total half bath(s)
  • 11 total rooms
  • Style: Colonial
  • Master bedroom
  • Living room
  • Dining room
  • Family room
  • Kitchen
  • Basement
  • Bathroom(s) on main floor
  • Master bedroom is 17x14,Includes: Full Bath, Walk-In Closet
  • Living room is 14x14
  • Dining room is 14x12,Formal Dining Room
  • Family room is 18x13
  • Kitchen is 14x10
  • Basement is Full
  • Hardwood floors
  • Fireplace(s)
  • Fireplace features: Living Room
  • Parking space(s): 2
  • 2 car garage
  • Parking features: Built-In Garage
  • Heating features: 1 Unit, Baseboard - Hotwater, Multi-Zone,Oil Water Heater,Oil
  • Central air conditioning
  • Cooling features: 1 Unit
  • Exterior construction: Vinyl Siding
  • Roofing: Composition Shingle
  • Pets allowed
  • Approximate lot is 76X186
  • Lot features: Level Lot
  • Approximately 0.32 acre(s)

Here are the financials -

  • In July 2006 the property was purchased directly from the builder for $595,000.
  • The original mortgage for the property was for $416,000 using the standard fixed-30 with Wells Fargo.
  • The property is currently listed for sale with a realtor for $489,000.
  • The 2009 property taxes are $9582.93.

What we know is that the homeowners bought at the peak-end of the bubble here in Northern New Jersey. At this point the home values were the most inflated. With the large down-payment of $179,000 which was just over 30% of the purchase. That was a huge bubble down-payment, and still very respectable. Just 2-1/2 years after purchase $106,000 in equity has already evaporated. Money that this owner put down on the property that is gone into the housing black hole.

If the property sells for full asking price with the realtors standard commission the current owner will lose approximately $130,450 during the 2-1/2 years of home ownership. Some investment! This is more than 20% of the original purchase price. That is a huge amount of money to have lost - especially on an individual basis. And this was a homeowner that was following all of the housing rules - no HELCO or equity extraction, having a large down-payment, taking a conservative loan (as opposed to the pick-a-payment ones). But they bought at the peak and are selling at a huge loss.

The sad part of the owners were that they basically were in the wrong place at the wrong time. Buying their home at the peak of the bubble.

Now lets look at the costs for the potential new buyer for this property. Paying asking price with a 20% down payment, with taxes, and a 30-year fixed today's Bankrate average rate of 5.41 the new owner will have to pay out approximately $2997.73 per month plus insurance and other expenses. That's a lot of money for a kitchen without the stainless appliances. A pretty hefty payment, which if following the 28% debt rule, the potential owners will need a gross income of at least $128,470. A high income needed in a time of great flux.

No comments: