As the onion layers peel back and we slowly start to realize which Wall Street firms and banks gambled on the mortgage party of the century, the memo apparently hasn’t arrived here in Southern California. Prices are still so high, we may need to go to Malibu for a little weekend rehab to come out of this housing daze. There has been this massive resistance from Wall Street and asset backed note holders to unravel what lies in the dark matter of these bundled securities for fear that they may actually have to sell something (whatever it may be) at current market rates. The argument goes that psychology is holding prices and sentiment down, therefore we want people to calm down and start drinking the housing Kool Aid again. Then everyone will be dancing in the middle of a congested 405. Unfortunately this isn’t going to happen. In fact, the Fed rate cut was short lived with a tiny rally followed by the next day beat down. If you like to see how the media got this one wrong again, take a look at this video of Peter Schiff going heads up against a crew of 4 from Fox last week. Fair and balanced? Always. Keep in mind these are the same folks that brought on a parade of people through the previous few years chanting, “the dollar isn’t falling†and “gold is overbought†and “oil will come down.†0 for 3 and your out in baseball.
Let us drive this point home by showing you an example of what is occurring in the current market. Today we salute Burbank with our Real Home of Genius.
I’m not sure if we are buying a garden here or a home. Either way, in this sprawling 1,354 square foot home nestled in Burbank, you will be able to entertain your guests in your 3 bedrooms and 2 full baths. As the listing gloats, they have installed new carpet hence you should buy. This home is an REO meaning the bank is the current owner. When you look at the pricing action on this place, you’ll understand why. So what was the initial list price?
Price Reduced:
10/31/07 — $589,900 to $549,900
Interesting day to pick for a price reduction. A $40,000 drop isn’t anything to sneeze at but then again, we are dealing with Monopoly money here so it really doesn’t matter. Let us take a look at some historical pricing on this home:
Sales History
02/26/2007: $534,211
09/22/2005: $620,000
11/22/2004: $532,000
For all those that claim Southern California housing doesn’t go down, this place has now dropped back to 2004 price levels. 3 years evaporating and the trend is still having pressure on the downside. Not only that, it is off by $70,100 from its peak price of $620,000, a drop of 11 percent. Assuming the bank sells the place at $549,900 minus the 6 percent commission and fees, they are at a loss. You think this is the only place? There are now over 11,000 short sales in Southern California. Even though the media is trying to aim the brunt of the negative press on the Inland Empire, every other county is quickly catching up.
Burbank is a nice city. So let us assume we were to buy this home. What is the local area income? The average household income for this area is $80,391. Now for the budget break down:
PITI: $4,047 (Down payment of $27,500 and a 30 year conventional mortgage)
Monthly Net Income: $5,163 (Filing as married with 2 exemptions)
We are left with $1,116 for disposable income. The monthly housing payment consumes 78 percent of this families budget. A family would need to be earning $150,000 a year to fall within historical mortgage ratio guidelines. When only a few years ago you would hear, “no one uses 30 year mortgages, those are outdated like bellbottoms.†Then suddenly we have this coming of housing religion standards and regulations and guess what, incomes actually do matter. 30 year mortgages don’t seem so wild. In the past 7 years not once have I seen one good argument showing how local area incomes have justified current price levels, not one. It was all based on hyperbole, a credit market that was unsustainable, and hollow Pollyanna promises. I’m open to hearing who is the target demographic of this $549,900 home and please, someone donate a mortgage for better photos.
Today we salute you Burbank with our Real Homes of Genius Award.
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9 Responses to “Real Homes of Genius: Today we Salute you Burbank. $549,900 for Bank Owned Home.”
Man, there is just scamming from all sides. I just read this article in the NY Times. It details how banks and mortgage servicers bilk borrowers with thousands of dollars in fees. Many illegal. Or severly miscalculated. One has got to be so careful with these guys. It doesn’t matter if it’s shady organizations like Countrywide or more “upstanding” organizations like Wells Fargo. They are really counting on the ignorance of borrowers. http://www.nytimes.com/2007/11/06/business/06mortgage.html?hp
Since were on the topic of foreclosures, here’s a pair of listings in Westwood/Century City from Redfin that will be worth following over the next few weeks/months/years. Why? Because one is a REO and the other is not. The real kicker is that they are basically identical condo units (OK, one is updated and the other not, but not so much that it justifies the $90K asking price differential) that literally are next to each other – units 302 & 304 (even and odd units are usually on the same side of a hallway/corridor – I should know b/c I lived in a similar condo up the street). So much for being a ‘good’ neighbor… Maybe they should be called ‘real-neighbors-of-genius’.
Here are the details:
2175 S BEVERLY GLN #304
LOS ANGELES, CA 90025
Asking price: $549,900
DOM: 156
Sales History
Date Price Appreciation
05/10/2007 $502,939 -7.7%/yr
07/22/2005 $581,000 20.8%/yr
07/25/2002 $330,000 —
Bank owned foreclosure. REO! Well sized, light/bright, open flrplan 2 bedrm condo w/ 2 baths. Kit w/ tile counters, lots of storage, in unit side by side washer/dryer, formal din rm flr to ceiling mirrors, extra large living rm has built in wetbar and gas frplc. Bed 1 has 3 mirrored door closet with full bath in hall. Mstr bedrm has over sized walkin closet, & att bath w/ dual sinks. Balcony off liv has rm to move around in & some city views.Security bldg, laminate flr. Assement pending per HOA.
2175 S BEVERLY GLN #302
LOS ANGELES, CA 90025
Asking Price: $639,500
DOM: 43
No sales data.
Spacious, light and bright corner unit. New bamboo/wood floors. Granite counters in kitchen w/ all new stainless steel appliances and lots of cabinets. Large Living room w/ granite fireplace and wet bar. Master Bedroom suite w/ lrg walk-in closet. Master bath w/ double sinks & granite vanities. In-unit laundry. HOA includes EQ ins. Building has pool, spa, sauna rec room & extra storage. Large balcony. Buyer to verify school districts. Close to Century City and Fox. Ready to move-in! Easy to show
[Right next to an empty REO that is listed $90,000 less! Hurry, this knife won’t last forever – catch it if you can!]
Right on target Dr. Housingbubble.
How long will it take for people to wake up and get the point and just lower the prices to normal! Take a look at North Fontana. I drove around in the area and saw signs on the houses with a price saying how much they needed to walk away from the house. Pretty desperate I say. I wonder how many of these individuals have a “Banana republic mortgage”?
We are in for a scary free fall that will hit terminal velocity sooner than we think.
Are those grave stones in the front yard?
As always, I enjoy reading Real Homes of Genius. Thanks.
The thing that gets me every time is the budget breakdown. I don’t disagree with the numbers but 5% down has to be difficult, if not impossible, for most. I mean, who has $27k in savings? No one I know.
Once you realize that, plus the current lending debacle, we’re headed for trouble.
Very telling article. And get this little nugget of gold. Some folks that are facing foreclosure are unable to refinance because they are unable to make the prepayment penalty! Think of how absurd that is. For one, if they are facing foreclosure how in the world will they afford an absurd prepayment penalty? In some cases, they try to roll it into the new mortgage but many of these subprime owners are unable to get new loans because of tighter credit and their lack of good credit. A Catch 22.
Here in Southern California we are in a historic stage of foreclosures and Notice of Defaults. The telling thing is that in the last bubble burst, it took about 5 years to hit bottom and reach any record numbers. Today? We are still at peak price levels and are already breaking records in the first stage of the bear market.
What an eye sore. RHoG is the best please do them more often!
I make roughly 80000 a year and no way would I buy that place with my hard earned dollars.
“The average household income for this area is $80,391.” 80K is what may be reported to the IRS from the W-2’s, but we have a large immigrant population here who have their own businesses and do not have a tradition of self reporting to the IRS. In other words, the underground economy is very big with all the small businesses and self employed. They can pay cash for a place. Construction was primarily an underground economy. It is primarily the W-2 folk that pay the incomes taxes. It is estimated that the underground economy makes up close to 40% of L.A. county’s economy. Any wonder the state is broke. Burbank has the studios and the self employed that support the studios, so there is money in town. The studio folk rather live in town than have long commutes.
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