if your situation would you sell

[lindymadill]

I own a house in 92130 across from highly rated elementary school. 3 bedrooms + loft. Bought in Sept 2005 for 750,000. 40,000 down, 600,000 in interest only loan fixed for 10 years and 112,000 in adjustable home equity loan.

My husband wants out of California? Should we try to sell before it gets too late?

[FormerOwner]

Sell now! The sooner the better. Once the spring selling season is over things will probably get worse. The odds are stacked against you if you don’t sell, especially the way your place is financed. Don’t go down with the ship.

[little lady]

Hell yes! Right now is the calm before the storm………I am doing just this very same thing. I hope to close escrow by May….
Of course I do not have the kind of loan situation you do …….ttfn

[temeculaguy]

Ditto, Sell. I could never leave the sunshine state but if you figured out the fully amortized rate for a loan of 712k and you can’t afford it, then get out of it while you still can, if you still can. Interest only is just another word for renter with a locked sales price, we used to call that a lease option. In ten years you will owe the same amount you do today. If it were going up 10% a year, it would make sense but it’s going to be many years before that comes back and most think it will get worse over the next few years. I personally think you still have time to get out because the impact of the subprime implosion and tighter lending standards will hurt the bottom first and it will take time to trickle up to you. The only problem is we have always had up and down cycles, yet we have never had one where we were so exposed and out of whack with fundamentals.

[lendingbubblecontinues]

“Before it gets too late?”

Unless you have a time machine, that time has come and gone.

LBC

[PerryChase]

I think that you heard it from the crowd.

All the best to you and let us know how it goes.

[blahblahblah]

Lindy, can your family actually afford this home? Here is my definition of “afford”, which by the way used to be the standard. Calculate the monthly payments when financing the home with 20% down, and an 80% fixed-rate 30 year mortgage. (If you do not have a 20% down payment, or at the very least a 10% down with a 10% second, you cannot afford the home.) If the monthly payments with this financing are less than 1/3 of your gross (before-tax) income, you can afford the home. Otherwise you can’t. If you can’t afford the home, you should sell it. It’s that simple. Painful, but simple. Some would probably argue with me, saying “I bought my home in 1999 and I put 0% or 5% down, I can afford my home!” That may be true in 2007, but those people are also very lucky and got to ride a huge wave of appreciation that has already stopped.

Best of luck to you and your family, I hope everything works out well for you…

[Bugs]

With a 2005 purchase, the only way I’d suggest not selling is if you think your household has the means and the interest to stay in place for at least the next 5 years, possibly longer.

Consider the worst case scenario; okay, not the worst scenario, but the scenario that occurs if the underlying premise (return to the long term pricing trend) happens. If the pricing really does return to trend and then overcorrect, as has happened in every other previous cycle, we would be looking at the 50% off peak pricing to occur at the bottom of this cycle. You could be looking at a $300k loss in equity if that happens.

But there is a possibility that such a correction might not be the end of our problems. It’s possible that the next upcycle will be very weak and the upswing won’t reach the peak that occurred this time. If that happened, the market might not reach the $750k level during the next cycle. Instead of being underwater only for the remainder of this cycle you might also end up being underwater throught the entire next cycle, too. Now we’re talking 15 years, not 5.

I doubt many people would give this scenario serious consideration, but it is a possibility. All that has to happen is the specuvestors get scared out or regulated out of the real estate market as a result of stricter lending underwriting criteria, thereby eliminating the most agressive buyers that drove this last cycle.

[Reality]

“I own a house in 92130 across from highly rated elementary school. 3 bedrooms + loft. Bought in Sept 2005 for 750,000. 40,000 down, 600,000 in interest only loan fixed for 10 years and 112,000 in adjustable home equity loan.

My husband wants out of California? Should we try to sell before it gets too late?”

It’s already too late to leave without taking a loss. Sell the damn place and mitigate the damage. But there will be damage.

BTW, you don’t own a house. The bank does. You own a mortgage for a house you probably can’t afford.

[gn]

I agree with JohnAlt91941.

Sorry to tell you this. Sept 2005 is considered “near the peak” of the bubble. Prices have only gone down since then.

Currently, your house is probably worth no more than 650k. You may disagree with this, but you will find out once you put your house on the market. In 4S Ranch, prices have already gone down 20%.

Since your down payment is 40k, I think you are now “upside down”. One option for you is to contact the lender & ask them to consider a short sale. Or, you can sell & pay the lender the difference.

In any case, it’s best to sell & cut your loss now, before it gets worse.

[little lady]

“Sorry to tell you this. Sept 2005 is considered “near the peak” of the bubble. Prices have only gone down since then.”

This is true, but, the longer you wait to get rid of it the longer you will be upside down……

Get out now while some houses are still selling…cut your losses……or it may take 10 years before you break even and can refinance out of that loan situation.

[anxvariety]

You’re tied up to a huge ball and chain… somoeone threw the ball over, it’s just a matter of how long is the chain? If you can sell without losing much consider yourself lucky and don’t spend much time thinking about it unless you’re comfortable paying for that loan and staying in that house for 10-20 years.

[lindymadill]

sept 2005 was near the peak. Other houses were selling for 825,000 at that time. We were renting and our landlord asked us if we wanted to buy for 750,000.00

Now the same house with some more upgrades than us was having trouble selling for 740,000.

I was going to try and sell with no agent. I have a broker’s license so I can list on the MLS.

thank you everyone for all of the replies

[SD Realtor]

lindymadill –

Asking the piggington crew if you should sell is like asking a lion if he likes meat or alfalfa sprouts…

My answer would also be of course you should sell. The caviot would be:

– you really love the home.
– you plan to occupy it for as many years as it takes to ride out the storm.
– you can afford the payments on it for as long as it takes to ride out the storm.

If you can put it on the MLS and offer a competitive CBB and the home shows nice and the price is right then you will do fine. If you have your brokers license then you are in good shape. I assume you have kept up your E&O and have all the correct docs. You may want to hire a TC if you haven’t done tranny’s in awhile. For a couple hundred bucks you can make sure the deal is done correctly documentation wise.

SD Realtor

[sdrealtor]

I hate generalizations but I think if you come here asking whether you should sell or not, you already know the answer!

[Author]

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