As the Thanksgiving food wears off and shoppers take a respite from hitting the malls at 2AM searching for rock bottom deals on stainless steal microwaves and diamond studded toilet plungers, we enter the last week of the month. From preliminary reports, it seems that the American Consumerâ„¢ should not be underestimated. Yet the housing market continues to trend downward with no end in sight. This year was a litmus test of sorts; in late 2006 we kept hearing that mortgage resets would have little impact on the overall housing market. With the knowledge that 2007 was going to face large resets, this theory was going to be put to the test. It did have an impact. Combined with stagnant values, increasing inventory, and debt saturation the market hit a wall. The question now shifts to what can be done for 2008, which mirrors 2007 in terms of the amount of mortgages resetting. The only problem now is financing is much tighter and the grease that was moving the housing system so quickly (that of financially irresponsible loans) is no longer available and the engine is coming to a screeching halt. Underwriting became more like a rubber stamp on any mortgage that had a signature on it. Not much was said because as long as the Ponzi scheme kept on going everyone would be happy. Plus, why would anyone want to slowdown the housing train with scrutinizing borrowers when Wall Street was willing to buy anything and everything? This would only slow the boom down. Think back to November of 2006. The sentiment is now very different.
Much has been said that prices have been stubborn here in Southern California. We’ve profiled this over and over with our Real Homes of Genius series. Prices do not reflect incomes of local inhabitants. Today we have the smallest ever profiled home but also the most reasonably priced. I say this because I didn’t think I would see these prices in any of the 88 cities of Los Angeles County for a few more years. Amazingly one by one, some homes are now starting to reflect reality. Today we salute you Compton with our Real Home of Genius Award.
$90,000 in Los Angeles County. Did you ever think you would see a five-figure price for a place in Los Angeles County ever again? Although this place takes up 455 square feet and has 1 bedroom and 1 bath, you can’t argue with the price. Leave it up to a little yellow place to start reflecting something that we haven’t seen here in Southern California for a very long time; this place is starting to reflect local area incomes and rents. Some sort of economic fundamentals are guiding the price of this place. You may argue with the location, size, and other amenities but credit where credit is due; I haven’t seen $90,000 in Los Angeles County for a very longtime except on certain luxury cars.
Let us run the numbers on this place. A 1 bedroom rental in this area goes for approximately $875. What is Arnold talking about that no places in California fall under GSE cap requirements? Not only will you qualify for an excellent rate, you won’t need a stuntman mortgage either.
PITI: $625 (Assuming $9,000 down payment and 30-year conventional mortgage)
Average Household Income: $46,174
With the tax benefits of owning, this place actually makes sense for someone living in this area if they were planning on staying and renting a similar place. Say what!? Did I just say it makes sense in relation to LA housing? Well, economically the numbers do seem to pan out. Maybe I did chow down too much Turkey these past few days. I do believe that we will start seeing more and more properties hitting the market like this in 2008. Don’t forget that not everyone bought in the past 4 years. We have folks that bought 10, 15, and even 20 years ago that need to move out for various reasons. Keep in mind that many baby boomers will want to leave Southern California in the upcoming years for more tranquil places and will sell to retire elsewhere. What I have heard during this housing bubble is people would rather lease in a neighborhood with better schools or location than buy in a less desirable area. This was the trade off. Yet at a certain point the premium on every Southern California city became disconnected from economic reality. That is buying became a lot more expensive than leasing. Make not doubt about it, owning is always more expensive but in certain areas rents were half of what it would cost to own the same place. The canary in the coal mine is usually lower priced areas and these are responding to market forces quickly because the margin of error here is very small. My question to you is will this pattern spread slowly or quickly into other areas?
Today we salute you Compton with our Real Homes of Genius Award.
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17 Responses to “Real Homes of Genius: Today we Salute you Compton. $90,000 in Los Angeles County?”
Wow, 2 X income. Now we’re talking!
Wow is right. Dr. HB, just going from memory, here, but wasn’t your last RHOG in this hood over $500,000? That was fast!
Doc, what’s that in the center of the picture.
They’re like tombstones???
Only problem with this house is that you might get shot by the neighborhood drug dealers. Not a bad exchange if you want an affordable house in Sunny So. Cal. .. lol
Looks like it’s attached. Wonder what the HOA fees are?
Love what I’m reading here. Finally. But in regards to the picture.. What are we looking at. Part of a duplex/condo? Not a stand along home? Whats the $90,000 going to buy? What is the picture telling us? Keep up the “great” work. JT
Wait, don’t get too excited…the last reported sale price, in 2004, was…wait for it…$31,000! It has apparently tripled in value! Woo! 455 square feet of 1949 built heaven!
This is more like a motel room than a home.
Are you sure $90,000 is not just the down payment required?
One of the problems I am seeing right now is that some homes are beginning to make sense to buy.
If you dont look at there past values. For example there is a home in Corona that looks like it is an okay buy when comparing it to rents in the area. However it has still doubled in value sense it was last bought in 2002. It does look like they put a ton of work in it but still.
I think that this is going to spread quickly in poor neighborhoods and lower middle class areas. However upper middle class areas will take a little while longer.
Of course I have no data to back this up Im just pondering.
$90K sounds reasonable at first flush, because it is such an abrupt departure from previous price levels, where homes like these were priced at levels only justified by upzoning the lot to build a 50 story hirise luxury condo tower.
It looks even better when you consider it’s only 2X median income for the area.
But wait a minute, and really think about it.
For one thing, just LOOK at the place. This is NOT a median house. This is an absolute slum that is too small for almost anyone to live in. This is the type of housing usually occupied by people at the absolute bottom of the socio-economic scale. Not only is it small, but it is old, lacking in architectural distinction, and in pretty bad condition. It is also in a very bad area.
If it is to be a rental, it would take work to bring it up to HUD requirements for voucher housing.
A price of $90, 000 is about $200 a sq foot, which really seems sort of high for this place. Would it rent for over $600 even in Los Angeles.
I’d say $60,000 is more like it.
Are we joking here? Compton and less than 500 sq. feet? The fence isn’t for decoration, you know. It’s a security issue. OMG.
That fence and the bars on the windows. Are those claymores I see in the yard? Oh, no thanks, I think I will stay in Kansas.
Looks like four mailboxes and four units.
Oh God. This is reflecting that there is a break in the bubble? This is really depressing. Oh Well, I guess I would be game as long as one of those tombstones in the background of the picture were included in the deal.
$875 for 1br rent in Compton? That’s absurd. More like $500, and you have to watch out for the drug dealers and flying bullets.
About $200 per sqft for a one bedroom in a slump area. Are you happy? No way, Jose.
I paid a house in Texas with 2000+ sqft for less than one fifthe of that price. It is even cheaper than the wood floor tile sold in Home Depot . And it is in a prime area. You can leave your door open all the year, day and night.
Why will you pay more and have drug dealers around you?
The smallest unit I encountered was a studio in Fremont BA. A bad neighborhood but probably not as bad as this one. It was $70k in 98.
It does take a brave person to live in any sub $200k neighborhood.
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