Could houses really be 100% overpriced?
I've blogged recently about the dubious measures developers were apparently taking to prop up sales prices, guessing they were overpriced by as much as a third. Well in at least one development in Florida that seems to be overly conservative, as prices may have been inflated by 100% or more:
Marketing reps with the developer, Levitt and Sons, say they're trying to quickly unload the fifty homes. Most of them were left over after people and investors backed out of deals when the housing market changed. Levitt and Son's Jama Shaw said, "This is our aggressive approach in moving onto our next phases and new floor plans."
Greg Toher was outraged when he heard the prices some of the homes were going for. Walking out of the auction room, he told us, "$145,000! Unbelievable! We paid $300,000! They just got rid of at least four for $145,000!" He says he closed on his three bedroom San Simeon townhome in December, "You've got to be kidding me, that's not fair."
Let's assume Greg went with a traditional 80% down mortgage, he'll owe just under $240K, but the market value of the home is just $145K, so he owes about $95,000 more than his home is worth. That's a lot to lose in six months, but it's what happens when houses of cards go down--they don't fall gently, they collapse. Of course if he went with an 80/20 Payment Option ARM, he may actually owe more than $300,000 in which case even if houses in that development double in value he'll still be underwater! Ouch.