Close the Books on 2812 Elm

Posted by Dave Fratello on Monday, December 28th, 2009 at 5:15am.

We have now seen the ending to a saga that involved a home's being offered for sale for more than 800 days.

2812 Elm has just closed for $1.325m, but it's what happened between 2004 and 2009 that makes for a revealing and cautionary tale about the local housing bubble.

Elm was remodeled completely in 1999 and held until February 2004, when it sold for $1.299m. That was a healthy sum then for an attractive, average-sized home (4br/4ba, 2500 sq. ft.) with a couple of layout issues – an oddly split second level and a downstairs bedroom off the kitchen.

Not so many months later (16 months, to be exact), the new owners were out. As the local bubble inflated rapidly, they saw a nice profit as they turned over the keys. They sold for $1.584m in June 2005, a 22% increase in the market price, $285k more than they had acquired the home for.

What happened between Feb. 2004 and June 2005 to increase the home's value at an annualized rate of 16%? Really, nothing happened. It was all a bubbly illusion. But the buyers were there, the money was available, and everyone went along with the boldly marked-up resale.

Yellow flags? Red flags? Not then.

Apparently believing that the bubble was real, the 2005 buyers made their own run at a nice profit. Just 15 months after moving in, the owners tried to cash out for $1.769m (+$185k/+12%), beginning in Sept. 2006.

Believing that the bubble could, should or would endlessly inflate proved to be a big mistake.

The local market had begun to turn by Summer 2006, before the sellers first listed the home for sale. But they seemed to feel some momentum that simply wasn't there.

Failing to get their price, the sellers held out at $1.769m for nearly 9 months. They dropped down to $1.649m in Summer 2007.

It's one measure of how poorly priced the home was that it failed to close a deal during the Great Spring Rally of 2007 – the last big burst of optimism in the local market before its pronounced decline, from late 2007 through the current moment. In those heady Spring days, there was still free-flowing money around if you looked, and some market sentiment to the effect that either MB was immune to the popping of the bubble all around us, or that the worst had already passed locally.

Only by early 2008 did the price on Elm come down to $1.599m, finally flat to the June 2005 acquisition price. By then, the rug was slipping out from under the house. (Pardon the metaphor.)

A year and a half on the market somehow had not been enough to suggest that the home was overpriced when acquired in 2005, and that the sellers would be lucky to get out with a contained loss. The price did not budge again for 10 months, before the listing finally canceled in late October 2008, logging 773 combined days on market by MBC's count. (There were bogus re-lists.)

Maybe only then, after the financial market meltdown of 2008, did it become clear that the local real estate market would not be making a dynamic recovery any time soon. That meant the home would have to be unloaded at a significant loss.

And so, 2812 Elm returned this Summer as a short sale, putting a real 2009 spin on the story. The start price: $1.299m, fully $300k below the last asking price, and $285k less than the sellers had paid.

In fact, as you may recall from above, that start price was precisely the home's Feb. 2004 acquisition price. As if we needed further evidence that MB is now living in 2004 prices. (For more see "How Resales of '03-'06 Purchases Are Faring," or our continuously updated online spreadsheet listing such resales.) Now it was clear how artificial the boost in price had been between the 2004 and 2005 sales of the same property.

The closed price of $1.325m late last week is a slight tick up from this year's starting point, but still down 16% from June 2005, and still represents an early 2004 value for the home.

The listing ran a couple of months this year, pushing the total days of market exposure somewhere over 825 DOM or so, a record we doubt we'll see broken any time soon.

Who took the brunt of the short sale loss?

If the records we see here are correct, 95% of the 2005 purchase ($1.504m) was financed. The once-leading financial institution responsible for that travesty imploded a couple of years ago and was bought for dimes on the dollar by a megabank.

Given that the megabank in question just repaid the taxpayers billions it had borrowed, a mere $180k loss may not be missed. But it's been noticed here in MB, as the cost of Elm's not-so-rapid rewind.

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UPDATE:  The listing for Elm switched after this story was published from a closed sale to "pending" again, perhaps a quirk of the short sale process. We'll watch out for any new change in status and update this post again.
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