Real Homes of Genius: Today we Salute you Arleta and Compton. Two Short-Sales for the Price of One.
I haven’t posted a Real Homes of Genius for sometime because the credit markets were busy being hit with the reality stick and exploding like a birthday piñata. Apparently, Wall Street got a few pictures of what was really stewing in their mortgaged backed portfolios and had a hard time justifying that a 600 square foot home was really worth $500,000 in the murder capital of the
The first home is a spacious 1,045 square foot home in Arleta. With 3 bedrooms and 2 baths, you’ll be wondering what to do with all the extra space. Maybe you’ll rent out the extra room to cover the mortgage. As you can see from the above picture, the gates are slightly ajar welcoming you into your future Taj Mahal. This home is an architectural work of art because the garage is actually three-dimensional like a Rubik’s Cube. The assessor has this place listed as 2 bedrooms but what the hell, the garage is converted therefore it is 3 bedrooms. It is a fixer upper according to the ad. So how much is this home listed for? A bargain at $449,000. Even with all the fantastic housing news hitting the media, we still believe that
12/18/2006: $400,112
02/07/2006: $470,000
10/19/2004: $340,000
Didn’t you hear the news? Reinforced steel gates are replacing the mental image of the wooden white picket fences as the ideal for a suburban home. The bank, for some reason feels that this home is still worth a peak price. What is the median income of a family in this area? How about $52,673. And you wonder why so many mortgages are going bad? Unlike Milli Vanilli, this housing decline is real. Even families making $130,000 are having a hard time staying out of foreclosure so you can imagine how this one became another unfortunate statistic. These families are heading straight into bankruptcy court. How any lender got this past underwriting will be a question we will be hearing about many times over for the next few years.
The next home is a pink beauty in
05/23/2007: $342,493
05/01/1990: $103,000
So already, the home is $48,093 under the previous sale price in May. You’ve saved $24,000 each month simply because you are patient and a smart buyer. To put it in a different perspective, any buyer waiting two additional months has saved the median annual income of families in this area.
Do we really need hardcore derivate and credit analysis to give you a visual as to why the mortgage markets are imploding? Do you need a picture of what subprime looks like? This isn’t over pricing a home by 10 or even 20 percent. We are talking about homes that are overpriced by 50 percent. I can understand the difficulty for folks in the housing syndicate to come to terms with what is going on. But this is the reality of the current situation. Wall Street is now forced to go into the trenches of their toxic portfolios and unless they want to become property managers, they’ll need to unload these homes at whatever the market will bear. Moreover, lenders from what I’ve heard are so stringent and playing hard ball these days, that they are actually looking at income statements and asking for 5 to even 10 percent down. The humanity.
Today we salute you Arleta and Compton with our Real Homes of Genius Award.
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12 Responses to “Real Homes of Genius: Today we Salute you Arleta and Compton. Two Short-Sales for the Price of One.”
Welcome back, RHOGA! We’ve sorely missed them, Dr.HB. IMO, I think you are being WAY too generous with your 50% overpriced estimate of these beauties. I think you may have inadvertently forgotten not only the financial risk the would-be buyer is taking but the monthly personal risk in trying to collect the rent. Maybe an off duty police officer or a well armed private investigator would do it for $500 a pop…just not me in the murder capital of the US. But then again who would want to rent out such palatial luxury when they could realize the “American Dream” and experience the joy of “pride of ownership” by actually living there!
Seriously, is there really some VP of a bank somewhere really hanging these kind of prices on this garbage?! Unreal. Still.
Dr. HB,
I was around when the Hunt Brothers tried to corner the silver market back in the early’80s. They did swell on their huge margin accounts all the way from $6 to $53. Then, a funny thing happened. The board of directors at the Chicago Board of Trade raised the margin requirements from $5000 per contract to $50,000 per contract overnight. On top of that, they made all new orders “liquidation only.” That effectively meant that only the board members could “sell short” silver and the Hunts and everyone else could only sell period. What happened next was predictable and has been well documented.
I think we are seeing sort of a hybrid mass “margin call” from the easy money housing lenders as of last week. They’ve now raised the lending standards back to sane levels and Bush basically said Friday that the caps on Fannie and Freddie would be raised over his dead body (no jokes, please.) Any ARM that is 2003 to present vintage is history. Guaranteed to blow up. What we Bubblebloggers have been warning about has finally came true. It. Had. To.
Prices will come back to earth, but I still wonder how bad it’s going to hurt the rest of the economy. Will our US Dollars be worth enough to buy a $250,000 real house or are we going the way of Wiemar Germany? At this point, I really don’t think there’s anyway to tell. As they say…something’s gotta give.
covered,
You are right. Most people buy homes in areas that have good schools, nice neighborhoods, or something that will benefit them and their family. You would expect this as a minimum for a home approaching $500,000.
Yet the last few years, the majority of folks almost took it as a new rule and said “well, this is California therefore it makes sense. If you don’t like it too bad” Maybe if we are talking about prime locations but we are not.
There are reports stating that in the last 2 years, 70+ percent of all originated loans in California are adjustable or interest only mortgages. When they adjust and the refinancing bunny isn’t an option anymore, what do you think happens?
You mean one has to prove their income and have money down?
Oh no…I think I heard a gigantic THUD coming from SoCal….
Let the gnashing of teeth begin:
NEW YORK (CNNMoney.com) — In the wake of the subprime mess, Democratic presidential candidates are grabbing hold of the issue and offering their own solutions. And the problem, according to many of them, lies with the mortgage broker.
You think these two homes would be scrutinized under this new proposed legislation?
$342K still seems pretty far out for a house like this in the sort of neighborhood you describe.
This is a very shacky little house. It’s old. The lawn looks scrofulous.Even in SoCal something like this shouldn’t be more than $100K, even if the land is zoned multifamily.
I agree with Covered’s comments. This isn’t prejudice – just facts. My sister owned real estate in that area – many of the people get government rent subsidies, like section 8. Collecting rent, getting it paid on time, maintaining the property, are more challenging with low income renters.
AND IT’S COMPTON! DUH!
Thanks, another great post, Dr. HB.
This blog is fascinating, but I don’t have a background in economics so I’m having trouble following some of the discussions. In your resource section, could you please recommend a few primer books on finance and economics, as well as real estate, for novices trying to understand these complex issues. Thanks!
Dr. – just a quick suggestion. Could you post a link to archived shortsale statistics displayed in the right column of your homepage? A breakdown by county would be nice too if it’s not too much extra work for you. I’m guessing the IE percentages are higher than OC and LA for now.
Thanks.
@sandpiper,
A few good books to give you an overview of what is going on:
The Millionaire Real Estate Investor by: Gary Keller
The Millionaire Next Door
by: Thomas J. Stanley,William D. Danko
Coming Crash in Housing
by: John Talbot
How to Profit from the Coming Real Estate Bust by: John Rubino
Manias, Panics, and Crashes by: Charles P. Kindleberger
These books should keep you busy for awhile!
@Peppermint Hippo,
Once I have a better amount of data, I’ll make sure to post it for everyone to access. Each week the number has been going up.
All:
Take a look at this fantastic article, they should of titled it Real Block of Genius: A subprime block of housing in OC
A nice little quote from the article:
“I never sell. I never refinance,” Zambrano said. “I don’t take money out of my house to buy a car or take a vacation. I’m not stupid.”
The only smart person in the entire story.
What we are witnessing is corporate welfare at its best. The injection of all this liquidity is tantamount to a bailout. If we believed in true free market capitalism, we would allow the markets to wash out mortgage companies and investors who made horrible bets in the housing market.
If you go to a Casino, and win $2,000 in one day I’m sure you aren’t going to tell them, “hey, can you hold $1,000 in an insurance fund in case my luck goes bad?” Then you come back the next day and lose $1,000 and expect the Casino to bail you out. The mortgage companies and Wall Street players didn’t build up enough cash reserves for a downturn. Who’s fault is this? They kept on hedging their bets and betting on a non-stop growing housing market. Why do you think the credit crunch is happening? They don’t have enough liquid cash to cover their losses!
In addition, this “bail out” talk is not for these families that are being foreclosed. It is for the lenders and Wall Street firms. It is too late for these families who now have lost their home.
I live in the Washington, DC market and the Housing bubble seems to be letting out more air than bursting. I think that Compton is a perfect example of the bigger market that saw great appreciation and really hurt the uninformed consumer. Now everyones greed has turned to pain. I always wondered how people could keep up with the rising market and high property taxes. I think this article is a great example and may help people make some sense of this new market. Thanks, keep them coming.
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