Brian, Other/Just Looking in Mountain View, CA

Seeking Real Estate Advice

Asked by Brian, Mountain View, CA Tue Sep 16, 2008

Hello. In early 2006 my fiance and I purchased a 2br/2 bath condo in Mountain View using a 7 year interest only loan with 22% down. We primarily bought because we really liked the home, but we were aware that the price appreciation seen at that time could not be sustained. Over the first year and a half to two years, our property gained around 11% in value, but over the past year, it has declined (based on comparable sales) to less than we bought it for (~ 3-7%). I am trying to decide if it is best to try to sell now (even in this tough market), take a loss, and recoup some of the down payment in an effort to avoid a negative equity situation. Other options would be to do nothing and keep the property hoping that the market turns over the next 4.5 years. We would like to refinance to a 30 year fixed once I am out of school, but I am worried that this won't be an option if property values don't recover. Any advice is welcome.

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Eric Trailer’s answer
Good evening Brian,
You made a wise decision, you bought for the right reason and you are set for the long term on your purchase. If the fundamental reason(s) that you've bought have chaged, diferent story. But as Mr. Iverson said, making a move now will only cost you money that you don't need to spend. And even when your mortgage resets in 2013, you will likely be locked into a similar rate then for a year as you are today (it's a little known secret how ARM mortgages are priced, and I am happy to share with you that secret. But here's a hint: the investor is betting on the fact that the rate at adjustmet will be the same as it was at commencement).
And regarding a 30-year fixed mortgage, it's kinda like buying Whole Life versus Term insurance: you"ll pay a lot more for it if very long-term security is what you need, but Term is likely more appropriate.
Mounain View is a great city with the best values in the Bay Area, and I echo again Iverson mentions about Mountain View: 1. city is well run, downtown is transformed, parks are the cleanest that I've seen on a consistent basis, schools are improving consistently, city knows how to lure the right business', etc. I lived there for ten years before moving to Palo Alto, and I have the fondest memories of living in Mountain View.
Kindest regards,
0 votes Thank Flag Link Tue Sep 16, 2008
Do not sell if you can afford the monthly payments. If you sell, you still need a place to live. Why throw your money away on rental payments and lose the money you have invested in your home thus far. Refinancing is a great option with rates continuing to decline. A 30 year fixed loan would put you in a more comfortable position. It is best to receive the tax benefits and when the market turns around you will see the benefit of the equity built up by staying in your home and paying on a mortgage instead of a rental payment. The only time market value really matters is when you buy low and sell high.
Enjoy your home
0 votes Thank Flag Link Tue Sep 16, 2008
Hi Brian,
I don't know what kind of rate you have on 7 yr interest only. Interest rates are very attractive lately. 30 year fixed is down to 5.625% - 5.5% these past two weeks. Refinance and pay down your mortgage would probably make you feel "less burdened", and "secured" of the downpayment you invest. You should'nt worry too much of your property value. We are holding quite firmly in Silicon Valley compared with all other areas in California and in the nation.
Please read my BLOG about this.
0 votes Thank Flag Link Tue Sep 16, 2008

Heres the problem in a nut shell. One of the major real estate concerns is that people are no longer committed to owning property for the long haul. If it isn't appreciating at a rate of 8%, people want out because something's wrong.

Most of our present real estate delema today would be resolved if people were thinking of their home as a "long term" investment.

Good luck,
0 votes Thank Flag Link Tue Sep 16, 2008

Keep the property. If it looks like you can re-finance within the next 5 years to a 30 yr fixed - do it.
Don't sell because it will cost you more in the long run. Why? 1) your selling in a softer market, (2) transaction costs will create a bigger loss, (3) you'll lose your tax benefit of owning a property (3) you still need a place to live. Your home should be a home (lifestyle first and investment second.
As long as you can cover your mortgage comfortably, I would stay. If the market goes down for the next five years (highly unlikey) then you might have a decision to make at that point. Never sell unless you have to and you really don't have to.
0 votes Thank Flag Link Tue Sep 16, 2008
We would advise you to wait the 4 to 5 years for the market to recover. What is the point of taking a loss now unless you want to move up because that would make sense. If your house sells for minus 5% and then you buy a more expensive house at a 5% reduction also, you would save more than you lose. In your situation, though, you should stay put. We expect that the market will recover and your home will be worth at least a little more than you paid. Right now, you only have a paper loss. Good luck.
0 votes Thank Flag Link Tue Sep 16, 2008
your best bet is to call your current mortgage holder, ask them for a loan modification into a 30 year fixed. if you are getting no where ask for home retention and if that fails ask for a manager. you need to be persistant but pleasant when you call. they should be able to do that for you. good luck Brian
Web Reference:
0 votes Thank Flag Link Tue Sep 16, 2008
Hi Brian - This is a great question and I'm sure a lot of people are wondering the same thing right now. The two previous answers are excellent. The only thing that I would add is don't get stressed out by scary headlines and don't panic because others are losing their homes or selling at a loss. Assess you own situation and do what is in your own best interest. As long as you like your home and are comfortable with the payments, why do something that guarantees a loss and causes you to move? Also be aware that not only will you realize the loss of equity, but also incur transaction fees of 6-7%. Then, who knows what you will pay in rent over the next five years. Rents are going up and they are not tax deductable like your mortgage interest.
Santa Clara real estate is going through a rough period right now, but the fundamentals are far stronger than the rest of the nation. The law of Supply and Demand still applies. What we are seeing now is an over-supply of homes for sale,but the fact is that there has been, and will continue to be,a housing shortage in Santa Clara County. As soon as the current mortgage fiasco sorts itself out ( I've heard estimates of 6-18 months), the shortage will become more apparent since most new construction has come to a halt.
Certainly no one can guarantee the future, but history shows that housing recessions rarely last 5 years and we are already 1-2 years into this one. Since you are a student, I would recommend concentrating on your studies and not lose any sleep over what's happening in the market. Your housing situation appears very sound and secure.

Best of luck,
0 votes Thank Flag Link Tue Sep 16, 2008
Hi Brian,

If you can still afford the mortgage payments, I recommend that you stay put. You only have a paper loss unless you sell, and your mortgage isn't going to adjust for another 4.5 years. In the meantime, you have a roof over your head and a home that you like. Real estate is unlike many other investments in that it is not liquid (it takes a while to sell in even the best markets) and it appreciates over time, especially here in the Bay Area and especially Mountain View.

The long-term prognosis for the Mountain View market is positive, as the city is strong financially, and is able to invest in projects that add value to the community, like improving the schools, public infrastructure, etc. The revitalization of Castro Street over the last ten years is a great example of this. These all affect property values positively.

At the same time, the hardest hit segment of the market has been the $800K and under / first-time buyer market. A lot of the buyers through 2006 were buying with minimal down payments, but with strong cash flows and 5 - 7 year fixed mortgages. Now with lenders generally requiring 20% or more down, these buyers are locked out of the market because they don't have the cash for the down payment. My expectation is that lending guidelines will relax somewhat over the next 4 - 5 years (probably sooner), so these buyers can re-enter the market, raising the market value of your home as demand catches up with and eventually exceeds supply again. As the new projects in Mountain View are bought up, the supply of homes in Mountain View will decrease as well, which will also have a positive impact on prices for existing homes and condos.

You can get free monthly reports on the market for condos or single-family homes with charts and long-term trends for a number of neighborhoods in Mountain View and the surrounding communities at:

0 votes Thank Flag Link Tue Sep 16, 2008
The answer to your questions are based on why you are askling them. Do you want to move to another area entirely or are you just worried about the cash that your house is worth? If there is no reason to move, then stop making yourself sick by looking at what it used to be worth. If you sold, where would you live? Presuming you would rent, what would be the cost of your rental compared to your mortgage? Rental prices are going up right now and while it could seem like a good idea to "get out from under" you may actually get into a worse cash flow situation.

Don't Panic. We are in a great area. Our Real Estate prices have dropped the least in the country. Our employment market is strong. Once the REOs clear the market, the prices will start to rise again.
0 votes Thank Flag Link Tue Sep 16, 2008
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