Wednesday, December 30, 2009

A Farewell to Equity... and to this Website

Jim Cheney has a featured listing up on a Windsor home located on Equity Court. It caught my eye not only for the ironic name of the street, but because it is listed for $399,000... nearly $100,000 less than what it sold for in 2003.

When I started this website a year ago I viewed it as a way to address what I saw as a major problem: housing prices were still too high and first time buyers were getting bad advice from Realtors.

This post by local agent Dave Roberts was emblematic of what I viewed as the problem (i.e. no presentation of the downside of home ownership, stating that despite the bubble a house was still “a sound basis for financial planning”, telling first time buyers they “are the heroes of our economic recovery”, a misconceived notion of bank capital, etc.).

While I’ve had some cordial conversations with Realtors, for the most part the reaction to this site has been negative. That was to be expected.

What I did not see coming was how first time buyers would generally react. I thought it would be a useful source of some facts/opinions regarding the risks of home ownership. But overall these facts/opinions have NOT been seen as a beneficial point of view to weigh when considering the purchase of a home. They’ve been viewed as an annoyance.

People want to buy a home, they want to have someone tell them it is the smartest decision they are making in their lives, and they don’t want to hear about any downside risk. In hindsight it makes sense. You are about to take on a load of debt that is 4, 5, 6 times or more your income for a 30 year time frame. Buying your first car for a couple thousand dollars is stressful. Buying your first home for a couple hundred thousand dollars is all the more so. You don’t want to hear that all that debt you are taking on could be a huge mistake that could ruin your life.

But this brings me back to the home on Equity Court. It’s an example of how the problem is not high home prices per se. The problem is too much debt.

Let’s take a look. According to the public records on

  • It was purchased in 2003 for $495,000 with a 1st of $396,000 and a 2nd of $49,500 giving them a 10% equity cushion.

  • In 2004 it was refinanced for $522,000 with a 1st of $445,000 and a $77,000 2nd mortgage (i.e. $76,500 pulled out of the home).

  • In 2005 it was refinanced again into a single $580,000 loan, thus taking out another $58,000.

  • In 2006 it was refinanced again into a $564,000 1st mortgage, and a $44,550 2nd mortgage (i.e. another $28,550 pulled out).

The home was put on the market last January for $495,000 and within 2 months it was lowered to $399,000. We’re still waiting for a sale. A Notice of Default was filed in August meaning in a normal foreclosure time frame it would have went to auction a few weeks back, however, a Notice of Trustee’s Sale has still not been filed. This is going to drag on for a while folks.

The total loan balance on the home is $608,500 (not including negative amortization from non-payments). Now, I’m not judging how this money was spent for I have no way of knowing. Tragedies happen in life (divorces, deaths, diseases and medical bills) and possibly the money pulled out went to take care of problems like these.

But $608,500 is a lot of debt. It looks to me as if this Countrywide loan was an adjustable rate mortgage due to reset in the summer of 2011. That’s still a year and a half before they would have to fully service the loan. Again, using ForeclosureRadar you can see that there are a multitude of homes in similar situations. No doubt more will appear in the next 2 years as everyone’s interest rates reset.

All this debt is not going away. Either people will struggle with this burden for a decade or they will default and a government that is already bankrupt will be picking up the bill. How that all ends I don’t know but you can bet that it means higher interest rates compounding the problem for everyone. Expect housing prices to fall for the foreseeable future.

At any rate, I feel it is time to wind down this website. I’ve still got a few posts in the works that I want to put up (one in particular focuses on around 60 homes purchased for over a million dollars that are all severely underwater showing this crisis is far from over) and from time to time I’ll link to interesting news stories. But overall the website has served its purpose. I’m now one of the top rated real-estate websites in Sonoma County so anyone looking for information on the local market can find reasons why buying in Sonoma County in the immediate future might not be a good idea. Sadly, that’s the last bit of news most want to hear.

A special thanks goes out to Patrick Killelea of (see a great recent interview with Patrick here). He really helped put this site on the map and has driven tens of thousands of readers to some of my posts. I also take some pride in the fact that the top three economic blogs on the web (Calculated Risk, The Big Picture, and Mish) have all linked to my articles as have news websites like the Wall Street Journal, Orange County Register, Washington Independent, Seeking Alpha, etc. Even real estate firm Redfin put a link to the site on their blog. A year ago I would not have thought all this was possible for a small local website with an anonymous author.

Also the regulars in the comment section have really kept me going (Tom Stone, Lisa, Tyrone, Tom from Healdsburg, and others). Maybe we can keep the discussion going in the comment section of occasional posts.

While the site is not completely dead, it will now begin its ride off into the sunset. Happy New Years and best of luck to everyone in 2010.

Wikinvest Wire