The House Left Behind
Hanging over the head of any economic recovery from the mortgage crisis is the threat of walkaways, the fear that homeowners who owe more than their mortgages are worth will simply pack up and leave, abandoning their loans and their homes. We wrote about this concern as foreclosures began to mount in the exurbs. So far, however, most of the evidence regarding walkways is anecdotal, and it’s more a worry about what may come in the future.
But enough people have walked away in California that the Irvine Housing Blog (chronicling “the seventh circle of real estate hell” since Sept. 2006) can find a few walkaways and take a closer look at what may have gone wrong.
So here’s 37 Night Bloom in Irvine, a fairly simple two-bedroom, two bath home with “a lavishly appointed kitchen” and built-in speakers throughout. It sold for $785,000 in 2006, and is listed now for $575,000, or 27 percent below its peak purchase price.
What happened here? Let Irvine Housing Blog elaborate:
Can you believe someone paid $785,000 for a 2/2? WTF was he thinking? Even at 27% off, it is still overpriced. If this property transacts for its asking price, the total loss on the property will be $244,500. The seller put $78,500 down (which he is losing,) and Bear Sterns Residential (or JP Morgan Chase) is going to lose $166,000.
It is not terribly surprising this owner walked away. He needs scuba gear and an endless supply of money to survive the cashflow drain until this property gets back up above water.
But, hey, the real estate ad says it’s professionally designed inside “to match your exquisite taste.” Actually, if you have that sort of taste, you should probably run, not walk, as fast as you can away from this house.
Don’t forget to listen to James Hunter’s “I’ll Walk Away” (link in the post) as you go.