Sunday, May 17, 2009

Housing Bubbles Popping In Dover

Rarely do we get to see the bubble inflate and pop all in one property. Housing values that almost tripled during the bubble with eager buyers constantly popping up along the way. Values that we can see now were so off from the real values. Earlier in the week we illustrated this housing chart -

The chart illustrates how inflated the housing values were during the bubble. At the time we had no idea we would be illustrating an example property that illustrated the chart perfectly. For today's example first we will look at the latest owners follies than the rise and fall of a property value in Dover. Let's get to today's example property -

Here is the property -

The front of the "Single Family House" with two doors and visitor.

The show ready kitchen.
(Well at least we know there is a Dunkin Donuts nearby - but so does most of North Jersey).

Here is the property info -

  • Status: Active
  • County: Morris
  • Year Built: 1900
  • 4 total bedroom(s)
  • 2 total bath(s)
  • 2 total full bath(s)
  • 7 total rooms
  • Style: Colonial
  • Basement
  • Basement is Finished
  • 1 car garage
  • Parking features: Detached Garage
  • Heating features: Baseboard - Hotwater,Gas-Natural
  • Exterior construction: Aluminum Siding
  • Roofing: Asphalt Shingle
  • Pets allowed
  • Approximate lot is 50X100
  • Approximately 0.11 acre(s)
  • Lot size is less than 1/2 acre

Here are the financials -

  • The property was purchased in June 2007 for $395,000.
  • The mortgage at time of purchase was for $395,000 using an ARM from Lehman Brothers Bank.
  • The foreclosure process started with the filing of a Lis Pendens in April 2008.
  • A notice of settlement took place in March 2009 with a foreclosure specialist private real estate investment firm with locations in Hoboken and Little Falls.
  • Tax rates for 2008 were $4340.98.
  • The property is currently for sale with a realtor for $199,000.
The property was 100% financed - no money down, no piggy back loans. Just 100% financing while the bubble was popping. The property owner was trying to own the property - see the standard ARM without a teaser or an Option ARM.

The property was bought at a peak price that the property will not see again for at least a decade. A few things we do not understand - what happens to the mortgage after the "notice of settlement." With the realtor fees added in the total loss for the property will be $207,940. We know the real estate investment firm is making some type of profit on the property so the loss will be even larger. Who is taking the loss? How is this legal?

For those interest in purchasing the property, if they are able to put 20% down and received a 30-year fixed at today's Bankrate rate of 4.98% the monthly payments would be $852.68. Adding in the property taxes and the monthly payments would be about $1214.43 per month - plus utilities and insurance.

For the other interested in parties that are unable to put even close to 20% down lets look at some other numbers. Using our favorite new calculator that includes the PMI charges and the new rate, a potential new buyer is only able to put down 5% or $9950. The monthly mortgage payment would be $1012.55, plus a PMI of $122.88, and the taxes of $361.75 totaling $1497.18. And for a buyer who puts only 3% down - the mortgage would be $1033.87, PMI now $167.29 the taxes stay the same for a total monthly payment of $1562.91. Plus utilities and insurance of course.

If the is a two family or has a rental unit that might take off a big chunk of the mortgage, making the living space smaller but much more affordable.

Something very interesting about this property that we do not often see is the rise and fall of the prices during the bubble. This property has had 4 owners since 2000 here are the sales dates the the prices -

  • Purchased in February 2000 for $140,000.
  • Purchased in March 2003 for $195,000.
  • Purchased in October 2006 for $301,600.
  • Purchased in June 2007 for $395,000.
  • Selling in May 2009 for $199,000.

The property more than doubling in price from 2003 to 2006 is one thing. But the more unbelievable part is the more than 23% property increase in 8 months - 8 months when mortgage companies were shuttering and property values were starting to decline. This was well past peak. Unless significant improvements were made to the property this does not seem realistic at all.

1 comment:

CoachingByPeter said...

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