Wednesday, June 25, 2008

903 Rougemont Avenue - $179,900.00

MLS #451157
2 Bedrooms, 1 Bath
Sq. Ft.: 720 ($250 Sq. Ft)
Year Built: 1952

The Bubble Blog has watched this price "drop" since January--$10K.

This South Belmont property near Quarry Park has appeared on Craigslist so many times that one of Real C'ville's crankier pals flagged it for overposting. In fact, you yourself have seen 903 Rougemont on Craigslist so many times that you already know all about it, right? We thought we did, too, until we discovered who owned it, and what other perennial Craigslist RE ad this individual has going simultaneously. Interesting.

903 Rougemont is an example of what we think of as "The Fairydust Syndrome" --which happened during the Boom: if a property is anywhere in C'ville, It's Magic: Not only is the property thus subject to overpricing, but also to having its virtues extolled as if it's the greatest thing since sliced bread.


MLS #452879
1745 Link Road
Lynchburg, VA 24503
3 Bedrooms, 2 Baths
Sq. Ft: 1800
Nice Area of the Nicest Zipcode
Across from the Oakwood Country Club links

And Lynchburg has been listed by Moody's Economy as #1 on The Top 20 Highly Overpriced Housing Markets in the Nation.

903 Rougemont is in what began as a neighborhood for the working poor--tiny lots with aluminum-sided, miniature houses. "The Working Poor" can't afford this any more. Nowadays, the neighborhood has some McVictorians in it, as well as nearby developments. But to call this a starter or 'single-family' 'home'? You and your kitty-cat could wedge yourselves into this place. And $250/sq. ft.? Seriously? That's what 833 Locust Avenue is going for.

Somebody's going to suggest we move to Lunchbag and commute to The Hook in our Prius...but that's not the point, is it?

No, no, no.


Montpellier said...

Fantastic Catch on the Rockbranch (North Garden) property!

They've been a bit more aggressive cutting the price in North Garden, although it has leveled out for the past 4-6 weeks. I would imagine that 'reality' intruded by way of Rougemont and they didn't fool around quite so long.

One wonders if it's time to add a 'flippers-in-trouble' or 'specuvestors' tag(s) to the system!

Larry said...

Loan amount $179,900.00
Term of loan 30 years
Interest rate 6.200%
Monthly payment $1,101.83

Total interest $216,760.68

Total payments $396,660.68

These numbers come from using the US Bank Mortgage Calculator, which I found linked on your site.

Whoa. So not worth it.

Diana said...

Larry, I agree that $179, 900 seems like a lot of money for a cottage. However, there are still very few affordable detached homes for sale in Charlottesville for those of us who aren't fans of condo living.

Another serious consideration for buyers is one of rising interest rates. Consider for example if the average rate on a 30 year mortgage were to rise to 10% (not outside the realm of possibility in this economic climate). That same house would cost $1,578/month (43% more) or a total of $568,350 over the life of the loan. That's $171,690 more due to waiting too long to buy!

Sebastian said...


as a Real Estate Professional (I'm just assuming), you of all people should know that interest rates will never get that high.

Because then the housing market would grind to a complete halt, rather than just stalling out.

The Fed won't let this happen.

But the "interest rates may go higher!" tactic is a good one to use on homebuyers who don't know any better.

It's in the same vein as the "20% Rebate" for broker's commission currently being offered on Craigslist. "Interest rates could reach 10%" is more honest, though. It's possible, just not probable.

Montpellier said...

I won't get into whether or not this is a good deal, in terms of a place to live, but from a specu-vestment standpoint - it stinks. The P/E rental ratio is horrific - and that doesn't include all the fees involved.

Larry - I don't know if you looked up the actual note - down at the courthouse - but unless they paid substantially less than they're asking, in just a year of sitting on the market, they'll find any gains have evaporated in capital (borrowing) costs.

Montpellier said...

Sebastian -

As you can tell from my comments, I'm not a big REALTOR fan. However, I think the specter of higher interest rates is quite real, for two reasons:

First, the FED has unleashed inflation - the spike in the price of oil is very largely tied to the plunge in value of the dollar. They basically hoped to make our current mess go away by allowing a short-term spike in price inflation, with the hopes that wages wouldn't follow. Just enough inflation to 'juice' the system. Then, they hope to clamp back down and return to low inflation. The only way to do that is to raise rates.

Much more important than the FED though, who only account for something like 17% of the total money supply, is the CDO/MBS Bond market. That's where all the money to fund these mortgages came from. Now that those bonds are worthless, nobody is buying them. They're not buying them because too many people got loans they can't pay back - they don't make enough money to be paying $180k for a 'cottage' in Belmont.

That all means no more money for Banks and Mortgage brokers to lend. Two things will happen: it will be much harder to qualify - buyers will have to show they can actually afford to pay back the loan - and showing means documented income and downpayments. Secondly, to persuade bond buyers to come back into the bond market, interest rates will be going up.

So, Diana is right that this house will be even less affordable when rates rise. The problem with her little scenario is the implication that this is the "buy now or be priced out forever" moment - that's the RE shill part.

There are very few affordable houses in Charlottesville - and there will be even fewer soon, at the current prices.

Of course, not everyone who is a seller can wait the 10-20 years it will take for long-term inflation to catch up with housing prices. In fact, lots of the bubble sales around here from '04-'07 were only possible using teaser rates on ARMs. That means some people will have to sell...and they will experience 'mark to market' pricing.

For buyers, I'd suggest this alternate take on Diana's observations: your mortgage payment - that classic Real Estate Sales-slime measure of "affordability" - probably won't change much - you can pay a higher purchase price for the house now, with a lower interest rate, or pay less for the house later at a higher interest rate. If you run the numbers using the mortgage calculator you get:

Loan amount $180,000.00
Term of loan 30 years
Interest rate 6.500%
Monthly payment $1,137.72
Total payments $409,581.89
Total interest $229,581.89

Loan amount $129,562.08
Term of loan 30 years
Interest rate 10.000%
Monthly payment $1,137.00
Total payments $409,319.88
Total interest $279,757.80

So, you can see - at the higher interest rates, keeping the "payment" the same, the house is really only going to be viable for 130k - probably still a ridiculous price for this nice 'cottage' in Belmont.

Please Note: The buyer winds up coughing up nearly one half-million dollars either way!

The ONLY people who benefit from "buy now" are the seller and the transaction parasites (the RE agents among others). The buyer is in the same boat either way.

In practice, after a period of painfully high rates, the pig will pass through the snake, and rates will come back down - long before the buyer pays off that 30 year note. The buyer can then do a sensible (no cash-out, 2+ percentage points lower) refinance, and save a bunch on that interest.

Finally, look at the crazy monthly payment we're debating! You can rent a much nicer house around here for $1.5k/month (what the above payment would be after impounds - taxes and insurance - are included)

I know I wouldn't be anxious to buy right now. In my humble, amateur opinion, that house would be 'correctly' priced at $100k - at today's interest rates. It really is one of the most bubblicious houses around here.

Sadly, the current pricing probably does reflect what the flipper needs to get to make their numbers work. This is wealth destruction in action, before our very eyes!