Real Homes of Genius Special Edition: Take 6 – 6 Southern California Counties, 6 Real Homes of Genius. Going Back to 1984 Prices?
The Wall Street illuminati have now come up with a new way of dragging new investors into the trenches. It is a technique practiced only by the most ardent Jedi investment bankers. A trick out of reverse psychology. What seems to be appearing now is a rather simple formula of managing expectations and sensitizing the public to come back into the water:
1. Down play that your company has any problems or issues.
2. After that is said, ensure that your earnings estimate is revised once, twice, or as many times as necessary to get to your new lower target.
3. Before the actual results are released, the stock will adjust a bit downward from wink-wink, some folks getting out while the party is still hot.
4. The news is released and if you meet your already revised earnings, the stock will soar to the stratosphere. If you miss, so what, you’ll still go the stratosphere simply because many have already jumped ship.
5. Mention that this is as bad as it will get through the PR machine. If you’re an investor, grab your ankles assume the position since you’re probably already seeing the pain in your portfolio. If you only had the inside scoop of what assets these banks were backing up.
Well today we’re going to give you a taste of that. We are going to go to 6 Southern California counties and highlight 6 homes that will show you how insane this entire housing market got and in fact, how delusional folks are to think we are anywhere near a bottom. Many of the option ARMs, which are all over the place here in Southern California, have yet to meet their true destiny. Many are still living hoping for that saving grace. A new report shows that 70 percent of subprime borrowers aren’t getting the help they need:
“NEW YORK (CNNMoney.com) — Seven out of 10 seriously delinquent subprime mortgage borrowers are still not getting the help they need to keep their homes.
That’s according to a report released Tuesday by the State Foreclosure Prevention Working Group, a coalition formed by eleven state attorneys general and the Conference of Bank Supervisors in the summer of 2007 to work with loan servicers to prevent unnecessary foreclosures.
The performance of subprime loans has continued to deteriorate, with many of the loans completed in 2006 and 2007 already in default.
For example, 28.5% of subprime adjustable rate mortgages (ARMs) that won’t reset until Spring, 2009 are already delinquent. About 21% of these same loans were delinquent in October.
The report concluded that “very weak underwriting and mortgage origination fraud, and not simply payment resets,” are what’s driving subprime loan defaults.”
Unfortunately the “help” they need is very straight forward:
1. Increase their incomes (unlikely in a recession).
2. Cut the mortgage balance down to a manageable amount (which of course lenders are resisting and would require in some cases 50 percent reductions).
3. Rates hardly matter. As you can see from the above delinquent rates many are now defaulting even before rates reset.
What government loan can you give to increase income? What government loan can offset rising costs of everything? The underwriting was so horrific that these people unfortunately could not afford their homes. That is the brutal fact. At what point do we stop these absurd haphazard plans and realize that no low rate government mortgage is going to increase income or cure pathetic underwriting? If anything, it is throwing a life jacket to a few select banks and Wall Street firms. Let us now look at some specific examples of why no life jackets should be thrown to some of these mortgage lenders.
Real Homes of Genius – Southern California
#1 – Los Angeles County
Current Median Price: $440,000
Drop from last year: -18.5%
Los Angeles is the largest county in Southern California. With nearly 10,000,000 people, this county has it all. From the glamour of Hollywood, the fun at the Santa Monica Pier, and the renegade Real Homes of Genius. It is also important to note that in Los Angeles County we have a renting majority so we are way below the national homeownership rate. Let us take a look at 1 of the 88 cities in the county that is being hit very hard and had a disproportionate amount of subprime loans.
The city of Lynwood has a median home price of $320,000, down an incredible 36% in one year. It is becoming rather apparent that there will be many cities in Southern California that will face 40 to 50 percent declines. Out of 264 homes in Lynwood 40 are currently distressed sales. You want to see why problems are occurring in California? The above home is a 3/2 home sitting on 1,468 square feet. Let us look at some details:
Current asking price: $259,900
Sale History
12/06/2007: $434,673 *
10/18/2006: $550,000
12/02/1977: $31,000
This is an REO. At the current sales price we are seeing a 52% reduction in less than 2 years. That my friends is a crash. This isn’t necessarily cheery picking either considering the city itself is down 36%. Who in the world made a $550,000 loan on a home that would rent for $1,000 a month? We don’t have enough data on the recorded data in 2007 so we don’t want to speculate. Oh wait, that’s right! This is California and speculation is the name of the game! Let us go forward.
#2 – Orange County
Current Median Price: $506,000
Drop from last year: -19.6%
Orange County for those out of the area, usually brings to mind images of the “OC” or shows such as Real Housewives of Orange County. Of course this is a tiny enclave that is completely unrepresentative of the area including the larger cities of Santa Ana, Anaheim, and Fullerton. The majority of people do not live in Newport Coast or Laguna Beach. Just to give you an idea, Laguna Beach has 23,727 people and Newport Beach has 70,032 people. Orange County has over 2,800,000 million folks so they have to live somewhere as well.
The city we’ll profile is Westminster which is one of the harder hit cities in the county. Currently the median price for a home in Westminster is $450,000, down 25 percent from a year ago. This is a working class city so we are now seeing drops across the board. The above home is a short sale and has 3 bedrooms and 2 baths. Let us look at some data:
Current asking price: $425,000
Sale History
01/30/2006: $575,000
08/20/2001: $180,000
In slightly over two years, we have seen a $150,000 reduction. I know many nice cities in the United States where that discount would get you a fantastic starter home! Yet the current price is still high given the fact that local area rents for a place like this would go for $1,750 to $2,000. Now do you understand why looking at rental/leases prices matter even in areas like California? If anything, having an understanding of the interaction between income and rents allows people to have a bigger buffer during downturns. Say you really wanted to keep your house but couldn’t. Simply rent the place and carry the costs until your situation improves. This option is off the table for nearly every home we are looking at. You can do this but your negative cash flow is so bad, you’d start looking like a Wall Street investment bank. Except in your case, no one is there to bail you out if it all goes bad.
#3 – Riverside County
Current Median Price: $306,250
Drop from last year: -27.1%
Our next two stops take us to the Inland Empire of California which is composed of Riverside and San Bernardino Counties. For all of those that claim there is no land in Southern California they simply have not treaded east far enough. There is plenty of land once you get out of the 50 mile coastal radius. The Inland Empire has taken the worst from this housing crash. Over building, speculation, and simply lack of an infrastructure nearly cement any growth in this region for sometime. In fact, if high gas prices remain many will simply not have the money to commute into the other counties for work. That is why many move out to this area in the first place! They can’t afford a home in the more pricier LA or OC areas and decided they’ll buy their home while sacrificing with a dreaded commute. Yet with gas prices as they are, I’m curious to see how many folks make this journey in the near future.
Our first city takes us to Canyon Lake. The current median price in this area is $275,000, a stunning 53.2 percent drop in one year. There are many spots were land was simply undeveloped and I’m not sure how things will pan out in the areas. Certainly the employment base isn’t there.
The above home is a short sale and has 2 bedrooms and 2 baths. It is a manufactured home which is fascinating since apparently in California any home is worth ridiculous prices. The dog is starring straight at the camera wondering, “is this the housing bottom?” Let us look at some details:
Current asking price: $139,000
Sale History
01/24/2006: $178,000
11/30/2004: $145,000 *
The drop in terms of amount is tiny but in percent terms it is off by 21.9 percent. Given the fact that this is a manufactured home and the employment base of the area, I’m curious to see some reports on bubble prices for non-traditional housing for California. We get plenty of data for condos, new homes, resale homes, but not much on these kind of homes.
#4 – San Bernardino County
Current Median Price: $265,000
Drop from last year: -28.2%
San Bernardino out in the Inland Empire also is being hit hard by the housing crash. Why not call the current situation by the true market reaction? This isn’t a housing correction or soft landing like many last minute pundits were preaching while luring new home buyers into a game of musical chairs with only one seat left. I doubt they have any sympathy for those now facing problems. Ironically, they put themselves out of work as well. Sustainability would have been better for everyone in the long run but they decided to pig out after a money starvation and their intestines exploded with adjusting mortgages, option ARMs, and every other craptastic mortgage that gave them nice commission checks but now that feast is done. Now, they are facing the same fate as those that bought. San Bernardino County has many of the characteristics that Riverside County faced; over building, massive subprime, and tons of land (so that argument is out the window).
The city we’ll look at is Ontario. The zipcode we’ll look at is down 35 percent in one year and the median priced home is $258,000. You really have to wonder what in the world people were thinking. Wages are stagnant and employment in this area isn’t that strong and much of the employment was riding on the housing boom coattails.
We can summarize the home above while you lift your head to the sky and explode with, bwahahahaha! Please, bookmark this home so whenever you get a feeling for bailing out lenders or Wall Street firms you can pull up this page and look at this home to knock some sense back into your soul. This 580 square foot home with 2 bedrooms and 1 bath is “corporate owned” which makes it sound a whole lot better than a picked up foreclosure.
Current asking price: $160,000
Sale History
09/29/2006: $350,000
10/19/2005: $260,000
08/14/1984: $119,750
Bwahahaha! We’re rolling back prices to 1984! George Orwell is spinning like a top in his grave. Who in their sane mind would pay $350,000 for the above place? More importantly, who in the world would fund that mortgage? Forget about bailing these lenders out, they need to be put in jail! I’m equally shocked with the $260,000 price but $350,000? Come on now. Don’t these examples make you feel happy about helping your fellow prudent lender and banker on Wall Street? Totally inexcusable. How many of your Congressmen have actually been to any of the cities above? This home is now off by 54 percent from the peak price and it still seems overpriced given area rents are $750 to $900 for a similar place.
#5 – San Diego County
Current Median Price: $395,000
Drop from last year: -19.4%
San Diego County was the first to show significant signs of correction in this whole housing mess. Just because it is down south, it doesn’t mean that prices should be higher. The home we’ll look at in this county is in Poway. The actual city of Poway has a median home price of $490,000 which is down 31.2 percent on a year on year basis.
Are we buying a garage here? Seriously folks. As a future requirement for listing a home you’ll need to have people take photography 101 at their local community college. This home in Poway is a 4 bedroom 3 baths home on 1,894 square feet. This is a bank owned foreclosure. Let us take a look at some of the details here:
Current listing price: $389,900
Sale History
01/16/2008: $500,000
12/01/2006: $565,000
Price Reduced: 04/16/08 — $424,900 to $389,900
They tried to go for a higher price but no cigar. The $500,000 is most likely the bank taking this place back which is happening all over the state. But look at that absurd $565,000 price tag in 2006. This home is off by $175,100 in 1 year and 5 months. Again, to those not in the California area, welcome to height of irresponsible lending.
#6 – Ventura County
Current Median Price: $430,000
Drop from last year: -24.1
Our final county takes us to Ventura. I think you are catching on that Southern California is a big freaking place with very niche markets. So to paint with a broad brush like during the boom days was simply a mass mania not seen since the Macarena took a hold for a few months until people finally took a long hard look at themselves in the mirror. We’ll take a look at Oxnard here. Oxnard has 3 zipcodes which have varying degrees of correcting; from 22 percent down all the way to 44 percent.
The above piece of housing is actually a church if you haven’t figured that out on your own from the picture. There is a 600 square foot home in the back according to the ad. Now I know what many of you are thinking and no, this isn’t some kind of joke. When we say that we had a real estate bubble we meant we had a bubble in literally everything that was built on California land. I love how the ad tells us that the church has newer windows. I think it is safe to say that this place is a “niche property.” Let us look at some history here:
Current listing price: $199,000
Current listed property tax for 2007: $46
Guess someone owned this place for a very long time and was looking to make some dough during the housing bubble:
Price Reduced: 01/31/08 — $325,000 to $315,000
Price Reduced: 02/27/08 — $315,000 to $199,000
Welcome to California folks.
Today we Salute you Southern California with our Real Homes of Genius Special Award.
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24 Responses to “Real Homes of Genius Special Edition: Take 6 – 6 Southern California Counties, 6 Real Homes of Genius. Going Back to 1984 Prices?”
!!Speechless – San Bernardino $600 a square foot for something smaller than the garage I built last year for $35,000 – $50 a square foot. That leaves $550 per square foot for granite if the whole floor is covered. I think Home Depot sells something like this for delivery as a garden shed. Why isnt some appraiser in jail for this?
Right on, Doctor. Right on!!!
Well oldernotwiser, I’ll go you one better. My perennial gardens cover more space than the entire lot of the house in Lynwood. And the gardens not only take up less than 1/12th of the yard but probably are cost more than what it cost to build that house (and the landscaping is probably better constructed too!)
How do you cram 2 bedrooms into 580 square feet? On top of each other? I’m getting a mental image of the commercial from Stepbrothers where Will Ferrell’s bed collapses on John C. Reilly.
Maybe the bathroom is outside?
Doctor, I have a real of home of genius a block away from me. 225 39th Street, Manhattan Beach. I know MB watcher from MB Confidential has highlighted it before. Anyway, was a flip gone bad. Was on the market last year for $1.695M, chipped down to $1.525M eventually. Well, today I saw it listed for $1.1M. It may make an interesting post regarding the “high end”.
In defense of Ontario they do have manufacturing still there in the city, maglite and some auto companies are there along with niagra water. Crime can be rough though.
After penciling out the cost of gas though it does not make sense for me to commute to ontario to orange county though even if I can get a descent home there now for 200,000 dollars.
I love me some real homes of genius. Thanks again for the great posts.
Soon 50% off of peak will look like wishing prices in many areas.
Lereah was right: Real estate can only go up! As in, Gee, they put up new houses. And, Gee, they put up new condos. And, Gee, they put up new apartment buildings. Up, up and away!
I like the church cum house. At least, if you can’t make your mortgage payments, you can pray in style. And what are the odds you’ll ever get evicted. Just dress up as a pastor and call the media when the sheriff comes to evict you. No bank will want that kind of publicity.
Oxnard. Wow. 27 months and the county median has dropped $200,000. This little gem is in “El Rio” which I think means “open sewer” in Spanish. More fun is coming in the newest zipcode 93036 which includes the infamous “Riverpark” disaster. Two years ago they started in the “low $500s” and now they cannot get interest at the “low $300s.” Implosion is an understatement.
THis from Irvine Housing Blog…
“Have you noticed the lenders are getting more aggressive in unloading their properties? I received an email a few days ago from an REO liquidator who wishes to remain anonymous. He told me that some of the lenders are giving him many of their properties, and he is able to sell them at whatever price he wants. The lender literally does not care as long as it is a legitimate, arms-length transaction. The lenders have absolutely no concern for the neighborhood comps; their only concern is the liquidation of their REO inventory.”
If this DOES start to happen in volume I’m guessing we will see accelerating price declines..duh. Guess that’s obvious.
Back in the day of the oil patch blow up (a small downturn compared to the current ‘crisis’) I know several people who picked up fantastic homes for a fraction of the original price. In some cases the bank paid them cash money to close the deal and get them off the books. Sounds like reverse hysteria.
Don’t know about the other houses Doc HB has profiled today, but I can tell you that the house in Poway being “merely” 389K is astonishing. Poway Unified is the best school district in the county of San Diego. For the area around the premium schools to meteorically fall like it has is just downright scary–Poway is not and has not for a long time had any “affordable” housing. The people living there are largely middle class and college educated. For Poway to be in the same boat as less affluent areas is sobering.
We have a long way to go considering we’ve only just begun. I wouldn’t live in some of these houses even if they paid me. Here’s a question. Can anybody guess the amount somebody has to be underwater before they decide to walk away from their mortgage?
Jes, Poway is a Po-dunct, overbuilt suburb.
End.
So this is sort of off topic, but Steve’s comment reminded me of what happened to the gov’t repossesed properties in the 1940’s. Think Japanese internment, or read the book SuperMob. Basically, a small group of individuals paid pennies on the dollar for large tract of land etc.
I am sure that some very deep pocketed investors are actually just waiting for the banks to get this desperate… Basically when the fed gov’t finally cuts them off…
Problem with caring, yes, Poway is an overbuilt, podunk suburb. But it’s an overbuilt, podunk suburb with the best schools in the county. Good schools happen where the families are affluent and educated. It’s easy to pretend that this housing collapse is ‘only’ hurting less educated, less affluent families–it’s sobering to see proof that the middle class is taking it in the chin, too. I rather suspect it means we’re all in more trouble here than we think we are.
I’m in the City of Ventura, and prices are still too high for me. I’m getting a lot of pressure from friends/family/acquaintances (many of ’em realtors, no surprise!) to jump in and buy, before housing goes back up. It is tempting, being that homes are getting pretty close to my ceiling price, and the fact that I’ve been priced out for YEARS. With all the uncertainty out there (inflation, war, economy, change of admin/party in power coming, bad govt policies/tax hikes in the People’s Republic of California coming, etc.) though, I’m determined to hold out until at least the end of the year, unless something really sweet falls into my lap. It sure gets hard, though, sometimes.
CompaJD, very interesting question. Actually my guess would be that the very savvy folks would be walking away early, not throwing good money down a hole. Now I have absolutely NO evidence to back this up but I am guessing that most folks would do everything in their power to hang on before pulling the eject handle.
What I find interesting is that so many are unaware of the depth of the problem. At my work MANY have purchased a home (or a second home) in the last couple/few years….along with new cars, boats etc (HELOC?). I don’t ask much about personal finances but I’m starting to hear grumbling about the cost of basics…food, transportation etc. These people ALL make well over the median income and would be considered ‘smart’, whatever that means. However, there seems to be a fast moving storm brewing that will sweep many of these people away. They are fine one month, then BAM. The heloc is gone, the rates reset and there’s too much month left at the end of the money. Again no evidence, but I’ve been around the block a few times. I agree with Jes..”we are in for more trouble than we think”
“I’m getting a lot of pressure from friends/family/acquaintances (many of ‘em realtors, no surprise!)”
So desperate for a sale that they’ll pressure family members…disgusting. I’d wait at least until the fall of 2009 before getting serious about buying.
Jes and Steve. For those of us who have been reading Dr. HB for a while, we do know that we’re in for a heap of trouble. Denial is a very powerful thing. I don’t recommend you do it often, but listen to cnbc teevee one day as a propaganda experiment. I kid you not, they will trot out “experts” every day to tell us that “we’re not in a recession” or if by some accident Peter Schiff is allowed on the air to tell the truth,they will personally attack him as being anti-American, etc. and proceed to announce that “we’re only in a recession if you listen to people who tell you we’re in a recession”…or some such nonsense. The banks are insolvent and well on their way to being nationalized. It’s called “level 3 assets” and they are being forced to “write them down,” NOT “write them off.” Huge difference and mind-numbing amounts. It is an economic problem, to be sure, but it’s a societal one, too. The US has lived far beyond its means for decades and the tab is now due…and we can’t pay it. I’d urge you to go back and read some of Dr. HB’s essays and links to the Great Depression and see the similarities to what’s happening right now. Sure, housing prices are crashing, but the cause of them going up in the first place was massive, many times fraudulent, easy credit, which is now over. What most people don’t realize is that our currency is devaluing at an increased velocity and the private banking cartel aka “the Fed,” and the failed business critters aka politicians (the ones that together started/ allowed this) are doing exactly the wrong things to try to stop it. If they keep it up the ending will not be a happy Hollywood one.
@covered..
Agree on all points. Been reading the Dr’s blog fro a few months now and glad we found it. For the last few years I’d been thinking that I am missing something or was plain stupid. How could it be that the people around me, most of whom make far less, were buying large homes, new cars etc? It just did not make sense. Guess I had assumed that they were smarter than they really are. No one would buy an 800k home on a 70k salary unless they could really afford it, right? I had just assumed they were trading up and putting massive downs on the new homes. Whoops!
What do you guys think of this article blaming our current economic woes on criminals?
http://www.cnn.com/2008/CRIME/04/23/organized.crime.threats/index.html
Anybody hear anything yet about his little tidbit: “Ambac expects losses of 81.8% of underlying collateral”
All these foreclosures mean that everyone who invested in mortgage-backed securities is hurting. Ambac has MASSIVE losses on its mortgage-backed securites. Ambac guarantees over $1 trillion in securities. The danger is that if they lose their AAA rating (as they obviously should) no one knows what will happen to that market. I don’t give a damn about AMBAC in particular, but I sure wonder what their collapse means.
Dominos falling.
Apparently at least some in the business community are seeing the potential depth of the problem.
Credit Suisse Analysts Forecast 6.5 Million Foreclosures.
http://seekingalpha.com/article/73814-6-5-million-foreclosures-is-there-a-behavioral-problem?source=yahoo
I still can’t understand the concept of buying a house that costs 0X or even 15X your annual income as some do in the real estate hot spots. I’ve never been above 1X and I don’t know a single person who bought above 2x their annual income. And we still are seeing soaring foreclosures in Wisconsin.
Spot on Again Doc. Please find time in your schedule to do the same kind of an analysis in NorCal. I think your readers in NorCal would really receive an eye opener and it would be good for the SoCal folks who read to get a look at the situation up here.
Uh-Oh? I here a flushing vortex in the distance…….prices are headed down the honey bucket.
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