House of the Month: Huge House – Tough Location
This post first Appeared in the August edition of Cirios Trends: Getting to the Bottom of the Housing Market
The expression “Real Estate is about location, location, location,” is well known. However, there is always a point where people will sacrifice a desirable location for an amazing home. This House of the Month tests the theory that real estate is all about location.
Neighborhood Overview: Morgan Hill became a popular southern suburb of San Jose during the housing boom because it offered buyers large new homes with a significant amount of neighborhood amenities (new parks, golf courses, grocery stores, etc). The housing downturn has been very hard on these newer developments as many of the buyers purchased homes with little or no money down. Prices have fallen by at least 50% and up to 65% in some cases. We see home values continuing to decline in the near term as credit markets remain tight and foreclosure activity seems to be increasing in well-to-do areas, like Morgan Hill.
Address: 19261 Saffron Dr., Morgan Hill, CA 95037
Original List Price: $1,290,000
List Date: 8/6/2007
Current List Price: $675,000
Previous Sale: $1,026,000
Previous Sale Date: 11/23/2005
Estimated Down Payment: $23,625
Estimated Monthly Payment: $4,704.51*
Bedrooms: 4; Bathrooms: 4.5
Liv. Area: 4,182 sqft; Lot Size: 9,147 sqft
Positives:
+ Updated throughout
+ Huge house with 4 bedrooms
+ Well-maintained, including exterior
Negatives:
- Location: Train tracks directly across the street
- Location: Home looks at 4-lane street and mobile home park
- Location: Long commute time to most job centers
Value Approach:
Step #1 – Location
As mentioned above, the subject’s location is very undesirable. This community, however, is not as distressed as other developments in the area, but the subject’s particular location has a significant number of negatives — which we have factored into this analysis.
Step #2 – Data Analysis
% of Zip Distressed: 3.05% (High)
% of Zip For Sale: 0.95% (Low)
% of Zip Sold over last 3 months (year-over-year): -17.6%
Elementary School API: 801
AHA (Affordable Home Amount): $725,062
We are suspect of the income data for this area. Even though it supports relatively high home prices, recent layoffs and a generally weak employment outlook will continue to negatively affect property values in this area. Comparing the distressed level and homes currently for sale suggests that there is a significant amount of shadow inventory in this part of Morgan Hill (for more on Shadow Inventory, please see: Keepin’ It Real Estate: Beware The False Bottom in Housing). In other words, with foreclosure activity that high, there should be more homes on the market than there are, suggesting banks are not listing all the properties they
currently own.
Step #3 – Comparable Properties
Click here or on the image to the right to see a CLEAR valuation for this property
Step #4 – Value Analysis
The reoccurring theme in Morgan Hill is that buyers looking for large homes are buying in more established neighborhoods than the subject’s. S1 is the only sale from the last three months in the subject’s development and it is on a cul-de-sac with a significantly larger lot. However, the subject is one of the lowest listed homes of it’s size in Morgan Hill so it will at least catch the attention of potential buyers. It’s simply unrealistic to think that there are no buyers out there willing to overlook a poor location to have what is in effect a brand new mansion.
Cirios Value: $625,000
Over Listed Amount: 7.4%