Profile picture for Aratinga

How Low will it Go?

I've been watching a particular property for several months as its asking price has been dropped multiple times and then dropped once more as of today. How Low Will It Go?

Background info on the property: SFH, zoned for horses, 4bd/3ba, approx. 2500sf, built in late 1970s. Largest floorplan in an equestrian community. A home down the street with the same floorplan sold for $799K exactly one year ago. Several other homes in the same tract of various smaller floorplans have sold for between $650K and $750K in the past 18 months.

When that $799K house sold last year, lots of other homes in the tract immediately went up for sale (owners saw lots of dollar signs, apparently!). This house is the last one remaining unsold; another of the same floorplan was listed at $735K for months and just went off the market (listing expired, I assume). The house I'm watching went on the market initially for $775K; then dropped to $750K; then to $735K; listing was passed to another realtor, who dropped it to $699K; then dropped to $675K one month ago, and dropped today to $659K.

The house has been vacant that entire time; the owner's got to be taking a bath on it. My question is this: What do you think this house will "bottom out" at? If you take the most recent comp sale ($799K for that floorplan), it's already dropped 17.5% in value in one year. Is it going to drop another 15%? 20%? 30% or more?? If I were to buy this house today at its asking price, how upside-down would I be on it in a year or two?

Gurus, polish up your crystal balls and make your predictions!
  • August 23 2007 - US
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Answers (71)

Profile picture for Aratinga
By the way, this house is in Southern California (as if the price alone didn't make that obvious...)
  • August 23 2007
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I predict it will bottom at a price with a "5" in front of it.
  • August 23 2007
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It's impossible to say. It depends on so many factors. The biggest factor being whqat situation the owners are in. It might be an estate in which could be either really good or really bad. Estates often don't care how long the house sits, or they don't care how little they sell it for. Or it could be well set people, that even if it's vacant can afford to sit on it. It also of course depends on outside market conditions and those are impossible to predict.
My hunch though.....it's not going to drop much more, they have already come down quite a bit.
  • August 24 2007
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Profile picture for Aldreth
Take the median income for a family, multiply by 3. That is how low it will go.
  • August 24 2007
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Profile picture for Soundos
Just out of curiosity, Aldreth, how or where did you come up with that formula? Is this a universally known rule in RE that I have seen before? Not trying to be confrontational, just curious. Thanks
  • August 24 2007
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Profile picture for Aldreth
Its the traditional housing cost.
  • August 24 2007
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  • August 24 2007
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Profile picture for Aratinga
Aldreth, that formula would work if this weren't a horse property; there are similar homes within a quarter-mile radius of this one that are on typical tract-size lots (7000 sf, as opposed to the 19,000 sf lot this house is on) that are listed for the low to mid-500K range. Equestrian property in So CA always sells at a premium, especially when it's located relatively close-in to major cities as this one is.

And Justyn, from what my realtor has been able to dig up, the sellers bought this house for $440K in 2003, mortgaged the heck out of it to get cash, and used that windfall to purchase another bigger home several months ago. They owe approximately $675K on the home they're trying to sell... so they're already selling it at a loss at the current asking price.

Here's a link to Zillow's Market Value Change graph on the property:
http://tinyurl.com/38cd5d
  • August 24 2007
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Profile picture for Aratinga
By the way, on my link above, the light blue line is the average home price change for all homes in that ZIP code; you can see that the dark blue line (for this particular horse property house) has always maintained a higher average price by virtue of being horse-zoned.
  • August 24 2007
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Profile picture for sunnyview
I would say that So Cal is heading for a significant price adjustment overall, but that close in horse property is definately a good long term bet as long as it has reasonable water cost and broad based employment reasonably close by. My guess is that with interest rates where they are now that it would be a good deal in the mid/up 500's. The chart you posted shows an unrealistic "value" bubble in about 2005. The older part of the chart shows moderate price growth heading up at a more normal rate. If you can buy near the normal appreciating rate before the bubble on the chart 2005-2006, you would most likely be no more than 10% off the ultimate bottom price (saving a 20's style depression). I don't think that's too bad if you have found a property that fits you that you can comfortably financially support for at least the next 10 years.

If you really want it, I would go ahead and make a lower offer at this point because they sound like they are cash poor and horse property is more expensive to carry then a normal house. You may be surprised. Offer them 569 or 579 which gives them money to carry their other house. If they had significant buyer interest on the property, they would not be aggressively dropping the price.

By the way, do you know what the property would rent for if you purchased it and then had to leave it, but could not immediately sell?
  • August 24 2007
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What are you really waiting for why don't you ask your realtor to make an offer on what you feel it is worth. You have been watching the house and things in the market are still changing with the new loan requirements it might cost you the home in the aspect of getting a loan so if you are quilified buyer than make an offer.
  • August 24 2007
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they are not going to except any offer far from where its priced now i bet.

they are pricing it to sell quick and found theyre bottom line based on the price drop that youve stated.

unless or untill the bottom completely falls out of thuis market like aldreth indicates has or already did this area will not ever be totally worthless.

thats just my take as a multiple so cal prop owner but what do i know i am in construction.
  • August 24 2007
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Profile picture for sunnyview
I don't know about that walty804. I'm sure they thought they would get close to their first list price of $775k, but you know that the buyer decides on what it's worth. It may or may not be worth what they are pricing it at today.

I say throw them an fair offer that you can afford and if they don't go for it then it's the wrong house anyway. Don't overextend yourself or get into a bad situation or you may be in the same situation that the current sellers are in. That's why you need to know what it might rent for, just in case the worst happens.

P.S. I love SoCA, and the more horses the better.
  • August 24 2007
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I agree with you sunnyview. The sellers sometime just don't get it. I have seen that terms and conditions can make a big difference. With the market having less qualified buyer out there is going to be much more diffcult to sell a property that has been sitting for a while. A property is worth only what someone is willing to pay for it. So I still say make and offer with good terms and see what happens.
  • August 24 2007
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oh yeah for sure the property is only worth what a buyer can or will pay.

its a great idea to make sure you can rent the place for what your payment is. very important in these times.

my guess is that if you make an offer well below current list on this so cal prop it gets kicked back because this person had already set they're bottom line.

I will interested in following this deal and only hope that both parties get close to they're goals.
  • August 24 2007
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Profile picture for Aratinga
Thanks everyone! Keep those comments coming. As for making an offer on the property, I didn't mention that we actually had made an offer on the property one month ago, right after they dropped the price to $675K. We offered $670K (we're prequalified, no contingencies; we did ask for seller to contribute 3% toward closing costs). They countered right back up to their asking price, so we walked away... only to watch in amusement as their house still didn't sell and now they're offering it for less than they would have gotten if they'd taken our offer. At this point I'm glad we walked!

I'm still interested in the house, but I absolutely do not want to end up upside-down on it. I agree with Cher that, worst-case scenario, it may end up being worth somewhere in the mid-$500K range before values start to appreciate again.

I also agree with Sunnyview that I should ignore the bubble appreciation on the chart and offer what it would be worth if normal steady price appreciation had continued... in fact, I printed out that chart, got out my ruler, and extended the line out to see where it would be today (anyone remember high-school geometry? Isn't that called interpolation or something?). That would put it at about $510K today.

As for rent, there's no way I could rent it for enough to cover a mortgage payment. I'm guessing that a house like that would rent for about $2750-$3000/month; a mortgage payment on the current asking price would be in the area of $5000/month.
  • August 24 2007
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Profile picture for aBT2B
don't buy it

wait it out

there will be a news in the comming months or so when realestate has hit a total rock bottom

in so. cal, since 2003, house prices have all went up by 200k.

so if a house was selling for 400k at the time, it has gone up to 600k now.

so the now house prices are in correction period,

since most salary man can't afford a 600k home, not even a 500k home even, i predict it will go back all the way down to perhaps 500k for sure. and further go down to 450k - 480k.

believe me i know what i'm talking about.

its just common sense.
  • August 24 2007
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Profile picture for aBT2B
do not let agents snake you into buying a house now.

you will regret it for sure.

there will be much more 'GOOD' houses on the market in 1-2 years,

especially, and I mean especially, the new houses that were recently constructed.
  • August 24 2007
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Seeing that you already offered more than what it is listed for before, I doubt they will go any lower. If I were you I would try to make another offer just below their asking. They know you are a serious buyer and know they should have taken your offer the last time. This time they will not let it slip. However, you can't offer much lower than what they are asking, since they know you were willing to pay more for it before. If you want this house it is yours if you stay close to their price for sure.

As for further depreciation, honestly I don't think it will go much lower. It is a desirable area with a special need such as horse properties. Those are always attractive for buyers. And even if it did drop a bit more the property will be one of those that will appreciate faster once this market turns around, so if you are planning on staying for a while, it might be something to think about.
  • August 24 2007
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Profile picture for Aratinga
All the "Mortgage Meltdown!!" headlines hit the news literally the very next day after we'd made our offer, and after reading/hearing it all, we were terrified that our offer might get accepted! We were extremely relieved that the sellers countered, and glad that they obviously hadn't read the paper or watched the news that day... if they had, I bet they would have jumped all over that offer.

It is a house we would keep long term, it meets our needs better than anything else we've seen in that price range (and we've been looking for several months), BUT -- I still can't help but think that if we wait, there will be a lot more homes coming on the market (as REOs, short sales, pre-foreclosures, etc.) at lower prices that are equally as good.

However, will we be able to get the loan we need at that time? That's the other big unanswerable question.... will jumbo fixed-rate loans be too expensive at that point?

If we DO buy this house now, will we be upside down on it for the next several years? ]

This is just a very scary time to be a buyer...
  • August 24 2007
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Is this a house you plan to staying in for a while? I totaly disagree with jv704 the market is changing and remember if loan rates go up then you will stuck paying a higher monthly for the same property that is one thing buyers forget. What are some of the upside to the prorperty? CA is one of the most desireable places to live in the country. One thing most people forget is that real estate is not a short term investment it is a long term one. If this going to be a place to call home than I feel you will be fine. I would put another offer on the table The sad part that both buyer and seller let $5000 come between making you get the home you really want. Was it worth it to you is the real question. based on the reduction in price and the loan rates you can't wait too much longer because one or the other will change so quickly and will be sitting say why. I know a lot of buyer are saying that now due to the fact they can't get a loan. The don't have 20% down but have good credit and guidelines are changing everyday so the price of the home soon won't be the problem it will be getting a loan to buy one.
As yourself if this is a place you want to call your home.
  • August 24 2007
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Profile picture for Aratinga
LOL! Ganice, you and I posted at exactly the same time... great minds think alike!
  • August 24 2007
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Profile picture for aBT2B
the loan rates are rising true.

but the loan rates will fall like crazy in 2 years.

much lower than rates now.

probably 5%'ish.

we need to ride out the storm.
  • August 24 2007
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And REO's, foreclosures and short sales are NOT in the same condition you will find the average home. 99% of them are trashed and needs major cleanup and remodelling. Remember people that are in this situation does not have the funds to take care of their house and maintain it. On top of that they are often very angry when they realize they are losing their house and trash it and/or take everything with them. I have seen houses completely gutted including them taking parts of the drywall with them lol, it's sometimes that bad. So by buying these homes you also need funds to get them up t your standards which can often be a problem.
  • August 24 2007
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Profile picture for aBT2B
and the new homes that were built this year,

surely they are the ones which will be hit the most.

those are what im preying for in 2 years. grin.
  • August 24 2007
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jv0704,

Did you not see the news today? New home sales up 2.4% for July or something like that. True that was after being down more than that in June, but if you look at the numbers, the West coast drove the figures (up over 20%).

I don't follow new home sales figures--so the above is basically just reading the headlines.

http://www.msnbc.msn.com/id/20423444/

Oh, and I will say August and September is likely to be down, just because of the news and the financing issues. This type of data is always trailing data. But it did show a sort of bottoming before the financing issues came up.
  • August 24 2007
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Profile picture for aBT2B
so you are saying we should all buy houses now?

is the market 'hot' again?
  • August 24 2007
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No, I'm saying your plan on finding out when to buy from the news isn't a good plan.

If you were a homeowner in a market hit by a downturn, did you see a press report saying: "The real estate market has just topped!"

The example I've given in this forum in the past is the shark attack news reports of 2001. They were keeping some people out of the water, even though the levels of attacks that year were low.

People in the news industry are not experts in real estate (or anything else for that matter). They write about what is sensational at the time. That the real estate market is heading up won't be seen as sensational, and in any case, even if they reported on that it would be a report on what happened about 3 months ago (due to the delays in closing and reporting transactions).
  • August 24 2007
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Profile picture for Aratinga
Krismer, I heard about the month-over-month increase in new home sales on the news today... but I'm betting that increase is mainly due to builders throwing all kinds of free upgrades, prepaid HOA dues, and other incentives at buyers. I've even seen (today, for the very first time) TV commercials from builders here! Builders are pretty desperate to move that inventory, it seems.
  • August 24 2007
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Profile picture for aBT2B
aratinga,

kary is in denial.

i think he needs help.

and the best help we can give him is have us all say,

'It's a TERRIFIC time to buy a home today!"
  • August 24 2007
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