Real Homes of Genius: Lifetime Achievement Award. Nearly 80 Percent Loss in Oakland California.
There has been a great debate going on in the comment sections these last few days. I’m not sure if the coming election is getting everyone fired up or is it the sound of crashing home prices that is getting everyone riled up? Regardless of who you are going to vote for the reality is, whoever inherits the Whitehouse come January of 2009 is going to face an economic downturn unlike anything we’ve seen in multiple decades. Sure, the politicians keep on smacking their lips saying, “well, we aren’t sure we’re actually in a recession” while everyone with a pair of working eyes is seeing a drastically different reality.
We’re getting so many mixed messages you’d think we are living with a bipolar partner telling us they love us today only to smack us upside the head in the morning. For example, first we get this sloppy across the board stimulus package rammed through with really no thought put into it. Now, surveys are showing that anywhere from 15 to 20 percent of people are actually going to spend their rebates! The rest is going to debt reduction and savings. Great planning here. $145 billion down the drain. Then this week, we have the Whitehouse threatening to block the ability of judges to rewrite mortgages. Of course, this has the massive support of lenders because a judge reworking a loan at today’s current market prices would force a lender to eat their own toxic mortgage crap instead of buying time for a government bailout. We already have caps being raised, reserve requirements being dropped, and big money lenders begging the government to offer a bailout. And by the way, the two main players that have any remote chance of bailing out the housing market, Fannie Mae and Freddie Mac just posted record quarterly losses. This before we give them carte blanche and lower their reserves. More excellent planning. This higher risk will push up rates even higher! Why do you think even as the Fed chops rates like Paul Bunyan, 30 year fixed rates aren’t moving? How much is this going to help if people don’t really care and are simply walking away is yet to be seen. No behavioral economic models factored that variable into equations.
As many of you know, I do pride myself in showing you the excesses of this housing bubble through our Real Homes of Genius series. In fact, even in the days when the majority were smoking housing peyote, all I had to do was take a weekend drive and realize that something didn’t jive in sunny Southern California. I don’t get a kick out of seeing someone who bought within their means, has a modest mortgage ($90,000 to $210,000) and has lost their job or is now unable to make the house payments. Yet I do find myself shaking my head when someone purchases a 500 square foot box, slaps a granite countertop, puts on some faux faucets and expects to make a $50,000 profit for one month of work. I have found homes that have fallen from 10 to nearly 50 percent in California when many said this would never be possible. Well today I have to tip my hat to a keen eyed reader who found the biggest drop I have yet to see in California. Today we salute you Oakland with the Real Homes of Genius Lifetime Achievement Award.
Real Homes of Genius – Oakland Style
If you haven’t noticed, this blog is niche focused on Southern California when we do our Real Homes of Genius series. There have been a few issues that focused on the national housing bubble with overpriced homes in Florida and Washington D.C. being highlighted. Today, our siblings up north show us the true excess of the housing hyperinflation. This home is nestled in another multi-million dollar city of California, Oakland. To appreciate the extent of this housing bubble, you really need to do a field trip. Pack the family in the car and take them on a trip to the inner cities of Los Angeles and you’ll find yourself realizing that something went completely awry when the median price for this region hit $550,000. Sure you can be myopic and assume Santa Monica and Brentwood equals all of Los Angeles County but reality is now coming into a collision with fundamentals. Back to Oakland, this gorgeous 800 square foot home has seen a lot of action in the last few years. In fact, just like digging up fossils from the past to realize that dinosaurs roamed the Earth, we can now dig up mortgage remains that show us that human nature is capable of unbelievable financial acrobatics. Let us take a look at the sales history on this home:
Date Sale Price
Sep 03, 1991 $45,000
Jan 20, 2006 $407,500
Jun 26, 2006 $450,000
May 24, 2007 $310,250
You may be asking, so what’s the big deal here? A drop of $139,750 isn’t unheard of and we’ve had other examples that have shown steeper nominal drops. The shocking part of this place is the current sales price which is, get this, $95,000! That’s right folks this place has seen a…
78.9 Percent Loss in California
I have seen 40 and even 60 percent losses but nothing that approaches the 80 percent region. You may be thinking that this is some sort of pricing gimmick but they did start the place out at $109,900 and reduced it shortly. This by far is the highest percentage drop thus far in the housing bubble burst and playing pricing games in lower to middle income areas especially in California will get you absolutely nowhere in this market. At the current price, this home might not be such a bad deal. Local area rents go for $1,050 to $1,100 so you may even have some cash flow here. Then again, I’m not familiar with the details of this particular area of Oakland. There are places in Detroit selling for the price of used cars but that still doesn’t make it a wise deal simply because the local economy is in shambles. Expect to see the unexpected in the next few years.
Today we salute you Oakland with our Real Homes of Genius Lifetime Achievement Award.
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19 Responses to “Real Homes of Genius: Lifetime Achievement Award. Nearly 80 Percent Loss in Oakland California.”
oh…my…god
Windows? No.
Satellite? Yes.
:::headdesk:::
Does the price include the wooden windows? This house makes Compton fixer upper shacks look like Neverland Ranch.
The shocking part of this place is the current sales price which is, get this, $95,000!
Does that include the seller tearing it down and removing the debris?
The playhouse/garden shed that was here when we moved in looked better than that and I am still debating tearing it. (A cost a pretty paint and contrasting trim now allows it to deteriorate structurally while looking nice.)
90% of us would not live in that house if we were paid $2k a month, no less pay $95k for the house. I wouldn’t be surprised some of the transactions were based on fraud. I saw places in South Central selling for $800k!!! My god, how many people were involved in that fraud to get that transaction done?
I’ve lived in the San Francisco Bay Area for over ten years now. Much of the Bay Area is actually sitting on top of two housing bubbles. The housing bubble that Greenspan made and the dot com housing bubble. It has only been recently that cities like Oakland have begun to have these sorts of price reductions (though this is indeed the most dramatic I have yet seen in Oakland).
Oakland has a lot of virtues. Good infrastructure. Excellent mass transit. Proximity to San Francisco and UC Berkeley. Some really beautiful neighborhoods (Lake Merrit and the Oakland Hills).
However, to understand why prices have fallen so fast, you can have a look at the following:
http://www.sfgate.com/maps/oaklandhomicides/
Oakland is a little less than 80 square miles. In 2006, there were 148 homicides, nearly 2 for every square mile. And the reality in the neighborhoods affected is much worse. You can safely assume this house is in the middle of something terrible.
The lenders who issued mortgages on this house for $407,500, $450,000, and $310,000 deserve whatever rough financial justice that might come their way.
The prior sale for 450k is as obvious an example of an apparent naked financial swindle as one can imagine. Every party to that almost certainly fraudulent transaction was likely knowingly complicit in a criminal act. Can we say straw buyer, cash back at closing?
What is amazing that the home is still overpriced from a fundamental perspective. As a structure, $119 per sq ft is a high price anywhere with lumber prices at thirty year lows and a huge supply of unemployed carpenters available for cheap hire. And this structure doesn’t look to be in good condition either. A new, larger, much better quality (2×6 solid studs, R19 insulation, cemplank sidewalls) manufactured house could be trucked in for under $40k.
As for the land, who would build anything nicer than this shack in that neighborhood? This is so not Palo Alto. The land is essentially worthless or worse, likely near an old freeway and saturated with lead.
As a rental, being a slumlord in such an area is not without problems. Oh, it will be occupied, but will the occupants pay the rent? And will the building be destroyed by a meth lab explosion? Is it insurable? Welfare mothers pumping out crack babies, homeless, and gangsters are not reliable tenants.
The buyer is still a knife catcher. The good news is that he can only lose $95k, or more likely his very small down payment equivalent to rental deposit. The long term future of this property (and the whole neighborhood) is to be someday abandoned to the city for nonpayment of taxes. Then the land is gifted to a big developer (Halliburton?) who brings in the bulldozer to build… What? A new national guard armory, detention camps?
Anyway to find out who the lender’s were for those $400k sales? I want to get my money the f@($ away from those organizations.
I’d be surprised if this story doesn’t hit the mainstream media. This is amazing. Nice work Doctor!
Check out this link from Fatwallet.com on CDOs. Hilarious, but be warned, mildly profane. http://docs.google.com/TeamPresent?docid=ddp4zq7n_0cdjsr4fn&skipauth=true&pli=1
This is the U.S. economy in a nutshell: In 2006, this house sold for $450,000
It’s going to take years to unravel this gigantic mess and sort things out. Some major financial institutions are going to have to fail because of this.
I would’nt want to be near that chimney in the next “BIG ONE”
Nevermind the $95,000 they are asking for this, what about the $450,000 that some fool paid for it? Are the two dishes and the piece of material holding up the chimney made of gold?
LOL, I do live with a bipolar partner, and for the most part, he’s more stable than the economy is right now!!! I just wanted to say this:
I believe that the “stimulus” package and the “free” checks are a band-aid for the current administration. I think that the current administration does not want to be thought of as having had all this awful economic stuff happen on their watch, so they are going to do the stimulus thing, which will make a little “blip” on the economy, long enough for the new president to step in. And, it’ll probably be a Democrat, just from looking at the numbers of people who’ve been coming out to vote…
So what’ll happen is, the current administration finds a way to “procrastinate” the economic tsunami that’s on the way, and then when it still happens, even despite the “stimulus”, the Democrats will be “stuck holding the bag.”
I’m surprised more people aren’t considering this….or maybe I’m the one who’s not thinking right??? Entirely possible, of course….
I lived in the Oakland Hills for over 20 years, but there are many neighborhoods that I wouldn’t even drive into. A friend of mine was driving on 14th Street and his car became surrounded by thugs. Fortunately he was able to talk his way out of it by speaking a foreign language. This house has negative value. Owning it would be a headache as you would be afraid to even approach it. You would have to pay taxes on it and Oakland might even red tag it judging from the way it looks.
The Oakland schools are terrible– I sent my child to a private school. Our neighborhood even though in the expensive hill area (Julia Morgan mansion down the street) was not safe and we hired a private guard patrol. The city services are incompetent. My house burned down because of the Oakland Fire Department’s negligence. The police didn’t come when I put in a 911 emergency call saying that my life was in immediate danger. Most of the city is like Detroit. The school system went broke and was taken over by the state. The list goes on. Anyone with half a brain would not go near most of Oakland. However north Oakland near the Berkeley border is actually quite pleasant with well built attractive old homes from the 1920s. The Oakland-Berkeley area was a great place to be before 1964. You can thank Mario Savio.
Fairfax county has an excellent easy to use RE appraisal tool. Look here
http://icare.fairfaxcounty.gov/Search/GenericSearch.aspx?mode=ADDRESS
enter
“Spring Gate”
in the street query, for example. ( That’s a condo area in this wealthier than avg zipcode. )
Look at the most recent sales and tell me you didn’t see PANIC SELLING.
Dr, are you otherwise known as Meatpuddle in TF? Thanks.
Albert, come on, everybody in BA knows that Oakland is pretty much like South Central. If you mention that you live in Oakland and you look decent, you will get funny looks south of Oakland or west of the bay. My son’s teacher grew up there and loved it, but decided to move several years ago after their car got broken into 5 times in one year (wouldn’t that be a record).
There are only pockets of good neighborhood in Oakland.
As for this house, I’ve seen pretty decent ones selling for $120k in Oakland even back in 1999, this kind of crap only worth 50k because you might need $50k just to make it livable. Oakland is prime example of the stupidity of lenders gone wild, without funny money and liar loans this part of BA will always sell for what it is worthed – a garbage price.
People talk about about 40% drop, but I think we are more likely to see a 70% drop in most of CA(the desireable hood will still hold up, but hoods like South Central will see 80% drop).
Your average crap shack was selling for $500k in ‘hoods where anyone that could afford a “normal” mortgage would not touch. Even if crap shack drops from $500k to $150k, if you have a family and have to send your kids to school, would you buy a house in most part of Oakland or South Central LA? Heeeeeeeeeeeeeeeell no!
Lenders(Banks) went crazy because everyone was making money and let people that should never have been able to buy a house get $500k loan.
And the fallout is going to be painful.
I am a local real estate broker, who lost a lot of business during the boom because I told buyer clients to WAIT and not pay over-inflated prices. But the mentality of the time was, BUY BUY BUY no matter how much DEBT DEBT DEBT you had to incur. People who didn’t buy were made to feel as if they were cheating their children out of a future (because if the house goes up 25% per year, you can pay $750K for a 1500 foot cottage now and pull out millions in equity later to send the kids to college).
This house is at 1419 Sunshine Ct, near the corner of 77th Ave and E. 14th St. Right in the middle of the homicide tsunami. Miles away from any school that a diligent parent would consider worthwhile. It is now owned by Fremont Investment & Loan, which lent 100% on the $450K acquisition price back in June of 2006. They foreclosed in 2007 for about $310K, the amount left on the first trust deed (that is an indication that the last human buyer was not fraudulent, because one way or another, $50K of the first trust deed of $360K was paid off; as for the $90K second, who knows?). Before the last human buyer paid $450K in June of 2006, someone bought it from the previous long term owner for $407.5K (also a 100% loan), and was advertised as having new carpet, windows, and range (which were stripped out and sold for scrap — I listed and sold the old abandoned Safeway Soap Plant a few blocks away back in 1999, and every bit of scrap metal and copper had been stripped out).
The bubble in this area is concentrated on the outrageous land prices. The house itself has always been worth very little. But because cities in this area have made construction so difficult, it creates periodic bubbles in land values; add a little easy money from the Fed and loosen underwriting standards, and land values shoot up to nosebleed levels. And by the way, the lot for this house is tiny — 1960 feet!! So in the end, the house has to be rehabbed for around $40K ($50/ft for new windoes again, new floor covering again, new paint in and out, and new electrical and plumbing, along with new fixtures and appliances). If it sells for $60K, that’s a total of $100K, with a $75K loan costing $$500/mo, and taxes and insurance of around $250/month (and the taxes of $550/month are currently, of course, delinquent — the Bank ain’t paying local property taxes!!), for a total cost of $750/month. Throw in another $100/month for maintenance and landlord utilities, and city business tax on the rental income, for a grand total of $850/month. It could maybe be rented for $1000/month (this is a neighborhood where craigslist rental advertisements boast “even stevie wonder can see this is a great deal” (real quote — I didn’t make it up — and coul;dn’t have made it up if I tried). That leaves $150/month cash flow, or $1800/year for $30K cash investment ($25K downpayment, plus $5000 closing costs). A 6% return, to be a landlord in a bad neighborhood. Maybe the price has to come down another $10K-$20K to make the thing work.
I hope this background info helps! Great Blog!
It doesn’t matter WHAT the price of any house is. The problem here is 1) the borrower – for being so freakin stupid as to NOT read the fine print or pretend they have the money, and 2) the loaner – who loaned money for such s stupid thing. Rightly, judges should NOT be rewriting mortgages – that’s insane. That’s communism. That’s bailing out idiots that had an IQ of 20. That’s relieving everyone from any responsibility. The slippery slope we go down if these borrowers are bailed out. As far as PREDATORY lending practices? Bull. Read the fine print Mr. Borrower. If you can’t, then go RENT a house. And who says OWNING a home is a right? The Soviets might have at the height of state controlled housing schemes…
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