Wednesday, April 30, 2008


"You know what's wild? Martin Luther King stood for nonviolence. Now what's Martin Luther King? A street. And I don't give a f**k where you live in America, if you on Martin Luther King Boulevard, there's some violence going down!" --Chris Rock, Stand Up

Address: 935 E Martin Luther King Jr, 90813
Asking Price: $375,000 (reduced from a cool $400,000)
Year Built: 2005
Size: 4 beds, 4 baths, 2092 sq. ft.
$/Sq. Ft.: $179
Purchase price: $620,000
Purchase date: 10/2005
MLS#: R712119
On Redfin: 180 days
Down Payment: $37,500
Monthly Payment: $2,400
Income Requirement: $94,000
Description: Beautiful SFR Close to Downtown Long Beach, it is a 4 beds/3.5 Baths, formal dining room, family room, 1/2 bath downstairs, all bedrooms on the 2nd level, Master & 1 Bedroom have full bathrooms, floors downstairs Tile/Ceramic, Carpet wall to wall upstairs, 2 cars garage, this home was built on 2005, imagine to buy an almost new home with only few minutes to the beach & with the moderm features of today's homes. AS 04/24/2008 the bank is working on the BPO for this property to get the approval for the Short Sale.

"Minutes to the beach"?? Really? Last time I checked this stinky pink here was nearly TWO MILES from the ocean. They must mean "minutes from the beach when driving 60 mph down Atlantic."

By the way, is there anything worse than tile floors in a living room? Maybe it’s just me, but I want some warmth in my primary living area. Tile is cold, uninviting, and reminds me of a bathroom.

Speaking of bathrooms...POOP CHECK!

Phew, we're in the clear. But thanks for the turd's-eye view of the toilets.

Just looking at these pictures, there is nothing “moderm” about this place. The construction and materials look cheap and tragically outdated (just three years later!). I see stucco, cheap windows, crappy bathroom fixtures, and bargain bin kitchen cabinets.

And is this place inhabited by drunken teenagers? What a bunch of filthy slobs! Do you want to sell this place or not? Good luck convincing a buyer that you took great care of this place. They almost seem proud of being slovenly. How else do you explain the failure to provide decent photos despite 180 days on market?

And get a load of that sweet dirt backyard. Yeef.

The pricing history, seemingly comprised of just numbers, actually tells a multi-layered, emotional story of delusion, greed, wishful thinking, despair, and eventually capitulation.

Nov 03, 2007 - $650,000
Nov 25, 2007 - $590,000
Dec 14, 2007 - $550,000
Jan 26, 2008 - $465,777
Feb 28, 2008 - $440,000
Apr 04, 2008 - $400,000
Apr 29, 2008 - $375,000

The new asking price represents a nearly 50% discount from the original asking price in just five months. Moreover, if the seller actually gets their dreamland $375,000 asking price, the total loss after commissions will be an astounding -$245,000.

Yep, you had better believe it.

Almost a quarter of a million dollars in just two and a half years.

This is one of the largest (if not the largest) financial losses ever featured on this site. But hey, it's the bank's money, right?

Now, I would never actively encourage people to walk away from their contractual obligations, but what the hell is this seller waiting for? I don’t see any other solution. Even if the bank agrees to a short sale and eats the $245,000 loss, the seller's credit score is still going to suffer. Is it worth going through the hassle of a short sale just to save a few FICO points? Apparently so.

My advice is to post some decent pictures, drop the price until it's 10% below the other delusional neighbors, and if it sits for another few months just walk. We already know banks aren't too quick on the uptake when it comes to short sales, and don't forget that short sales require someone TO SELL TO. This home is DOOMED.

There's a saying that goes, "A wise man doesn't need advice, and a fool won't take it. "

Judging by the past decisions involved with purchasing, constructing, decorating and maintaining this pig's trough so far, what are the odds that this seller will act wisely?

Fun Fact from Wikipedia:

Did you know that in 2006, Derek Alderman, a cultural geographer at East Carolina University, reported that more than 730 American cities had named a street after King. 70% of these streets were in seven Southern states: Alabama, Florida, Georgia, Louisiana, Mississippi, North Carolina, and Texas. King's home state of Georgia had the most, with 105 streets. Only 11 states in the country did not have a street named after King.

The more you know!

Monday, April 28, 2008

Gotta Know When to Hold 'Em had an interesting post today regarding the reluctance of banks to get homes off their books despite rapidly depreciating values. Doesn't seem worth it to bleed carrying costs and diminished value each month.

It's to the point where if I see a listing that's a short sale or bank-owned, I won't so much as give it a second thought. I mean, what's the point? Sit around for weeks and wait for an overwhelmed, overworked bank rep to finally return your call only to reject your fair-market offer?

Hell, by that time the median home price will have lopped off another 1 to 2%.

Anyhow, Patrick provides an explanation that makes sense to me.

One answer is that if the banks were to really sell their foreclosures for what they’re worth in the open market, that would devalue the collateral they hold on all their other mortgages, rendering the banks instantly insolvent.

That pretty much nails it, no? Because of the likelihood a bank would have multiple mortgages in the same neighborhood--and quite possibly on the same street--it's in their best interest to ensure the comps aren't any lower than they need to be.

However, all it takes is one lender that's less confident about the prospects of a federal bailout to jump the gun, dump a property for market value--or below it--to cause a chain reaction.

Go read the link and the corresponding comments. Come back and let me know what you think. I'm curious about your thoughts.

Orange You Glad You Bought in '03?



I think it's a little too "CLOOSE" to that elementary school because agents are apparently outsourcing their work to third-graders.


First, do we even need to debate whether their little "TWO SEPARATE LIVING SPACES" construction project was permitted? There's about as much chance of that as gas prices dropping to 50 cents a gallon.

Second, you know a house is severely overpriced when the realtor herself concedes renting out the Bob-Vila-on-a-two-week-meth-bender 1 Bed/1 Bath "apartment" is your only conceivable shot at swinging the mortgage payment. But the realtor told me it's GOOD FOR HELP MYSELF so perhaps I shouldn't be too quick to judge.

There are so many things wrong with this listing (and the property itself) that frankly, I don't know where to begin. I mean, out of the 13 photos provided, three are repeats. And out of the 10 pictures remaining, we get this:

"Do you mind, ladies? We're trying to sell a house here."

I love how there are very few interior shots, but numerous photos of the innumerable parking configurations this gem has to offer:

But, when it comes to staging and photographing the inside of this house, no expense was spared:

Can't you just feel the cockroaches scrambling across your toes as you eat your Frosted Mini-Wheats on that busted-ass catcher's mitt of a sofa?

But enough poking fun, let's get down to brass tacks.

Address: 1080 Orange Ave., 90813

Asking Price: $359,900 (reduced from $391,500)
Year Built: 1920 (Really? The place doesn't look a day over 75)
Size: 3 beds, 2 baths (technically), 1504 sq. ft.
$/Sq. Ft.: $239
Purchase price: $275,000
Purchase date: 1/2003
MLS#: Y802842
On Redfin: 11 days

Almost $360,000 for this asthma shack. Can you even believe it? What does that work out to?

Down Payment: $35,990
Monthly Payment: $2,700
Income Requirement: $90,000 (local median income is around $25,000. You read that correctly, punchy)

That insane (and frankly, offensive) asking price represents nearly $65,000 in profit after commissions. Hell, they deserve it for having to live like derelicts for five years!

Now, you have to give them credit for buying before the bubble really took off. Must be a shrewd businessman, eh? (Well, except for the whole you-picked-the-worst-time-since-The-Great-Depression-to-sell-your-house thing).

Importantly, regardless of the attractive $239 per square foot price (wow, friends. It's getting ugly out there. A few more quarters of this and they'll be paying us to buy condos on the sand) the indisputable fact is that this home is in a terrible, awful, horrendous neighborhood. This 'hood is so bad it makes Fallujah look like Newport Coast.

Honestly, I'm surprised they didn't call this "Alamitos Beach" like so many other real estate fraudsters. They actually admitted this dump is in North Long Beach. And I know I haven't featured much in North LB (because in my mind, just like Rocky V, it doesn't exist), but trust me when I say that if you value your property and your safety you don't want to live there (unless of course, you're a gang member or drug dealer).

I'm sure someone will be quick to single out Bixby Knolls as an exception to the North Long Beach characterization. Yes, Bixby Knolls is extremely nice with amazing(ly overpriced) properties, but it's proximity to rampant crime and poverty makes it difficult to justify those prices. Frankly, I've never understood the allure of Bixby Knolls. Yes, some houses are beautiful and you can actually have a nice sized yard for your kids, but as far as the surrounding area goes it's like a gorgeous, desirable diamond placed gently upon a pile of camel shit.

Anyhow, this property will be lucky to sell for the 2002 value. As we all know, a vast majority of the properties actually selling in nice areas of Long Beach are at 2004 prices, and it'll be '03 in no time. So what hope does that provide to sellers in awful neighborhoods?

And despite the $30,000 price cut, at this asking price they'll have plenty of time to ponder how best to park all of those cars.

Monday, April 21, 2008

A Tale of Two Cities: UPDATE II

Remember this post from just three weeks ago?

In that post I highlighted the recent price reduction to $265,000. Well, things are progressing just as I've predicted.

Just a few days ago the price was reduced another $40,000! The real estate situation in Long Beach is getting ugly, and it's getting ugly fast. Frankly, the whole scene is disintegrating faster than even I anticipated.

For those of you keeping score, the asking price has been slashed an incredible $85,000 in just over a month.

Can you imagine if you were stupid enough to believe the realtors and commision-zombies claiming "now is a great time to buy" and you bought this place a mere four weeks ago for $310,000?

Or if you bought just six days ago for $265,000?

You would be upside down instantly, overpaying for the next 30 years on an "asset" that is depreciating DAILY and that would take at least 15 years to break even.

Look, the fact is that nobody knows how to value houses in this market. Things became so detached from fundamentals and normal valuation models during the last few years that the ONLY way to calculate the value of real estate is within the context of basic economic fundamentals.

As I said in my last post: As long as big chunks of "equity" are being torn off indiscriminately and the house still sits, it means nobody knows what the hell anything is worth anymore. The only reliable indicators to steer this lost ship back to shore are incomes, rents, and availability of credit. Until all of those factors creep closer to alignment with house prices, the bottom is nowhere in sight.

I know this latest price reduction is exciting, but take another look at the listing photos. Still very far to go, my friends.

Saturday, April 19, 2008

Flippin' Ain't Easy

Address: 514 Temple Ave, 90814
Asking Price: $549,999 (Whaddaya say we call it 550?)
Down Payment: $54,999
Monthly Payment: $3,500
Income Requirement: $137,000
Year Built: 1923
Size: 2 beds, 2 baths, 1240 sq. ft.
$/Sq. Ft.: $444
Purchase price: $520,000
Purchase date: 9/2005
MLS#: R801951
On Redfin: 55 days
Description: Great home for 1st time buyers. Rose Park historic area. Beautiful spanish style home, totally upgraded interior and a few blocks from the beach. New recessed lighting thoughout the home, new kitchen cabinets w/ granite counter tops. Upgraded bathrooms w/ new bathroom vanity's, mirrors, tile and new bathtub, toilets and showers. Master bathroom has walkin closet. New sliding french style rear doors.


By the way, I love the “perfect for first time buyers” line—possibly one of the dumbest realtor clich├ęs. Hey idiot, you're asking more than half a million dollars! How many first time buyers do you know with that kind of scratch?

Plus, a $137,000 household income is required to realistically afford this place. Someone with this kind of income and a $50,000 down payment doesn’t exactly sound like the type who would be in the market for a “starter home.”

Furthermore, if this stucco bucket is so affordable that it’s great for a first time buyer, then why aren’t the sellers just keeping it and reveling in how "great" it is?

Since realtors clearly aren’t referring to affordability when they say, “first time buyers” what they’re really saying is, “You’re just a few years out of college, you know what’s like to live in a shit hole.”

This dump is no more “perfect for first time buyers” then black tar heroin is “perfect for health nuts trying to lose weight.”

I walked by this place the other day and poked around. I’m pretty sure the Glamour Shots people were responsible for these pictures—it’s actually CONSIDERABLY uglier in person.

I didn’t get to go inside, but I can tell you with some confidence that the lawn is the best feature of this property.

There is a very creepy vibe to this house. As you can see in the photos, blue painter’s tape is around the front windows and all over the house. The kitchen upgrade is incomplete, floors are unfinished, and there is “construction” dust all over the kitchen and bathroom countertops.

I mean, just look at the hastiness of the listing photos. They were so desperate to get out of there they couldn’t even wait until the movers finished clearing out the rooms! Mattresses against the wall, dressers wrapped in cellophane, moving blankets…it’s just eerie how quickly this home was deserted. It’s as if these people were living in the home, working to fix it up and then ZAP!, they were suddenly vaporized.

It’s pretty clear that this is a flip gone flop.

The former residents got in over their heads financially and got the hell out of dodge. And judging by their hilarious pricing strategy and lazy-ass photos, I don’t think they’re the types to make much effort to avoid foreclosure.

Think about it, if you had a $3,500 dollar monthly payment, plus the costs of upgrades, not to mention property taxes and insurance, and as you slowly realize your salary can’t support this crushing debt-load, the market takes a dump and you’re suddenly 15-20% underwater…what would you do?

If you were shrewd, you would send the keys back to the bank and walk away. It's either that or spend the next 30 years enslaved to a 85-year-old shit box sitting on a busy street worth half of what you paid, that even if you could rent it out, would not come anywhere near covering your monthly carrying costs.

The plane is engulfed in flames; time to grab your 'chute and bail out.

My guess is there will be a Notice of Default on record very soon. This baby is going back to the bank unless the sellers start pricing aggressively and take a substantial loss.

And let’s talk about the wishing—errrr, asking price. If this seller, who is long gone by now, manages to find a knife-catching buyer with severe head trauma to pay asking price, after a $33,000 realtor commission this seller will have to write a $3,000 check to get out with their credit in one piece. Worth every penny. You got off easy.

However, if you factor in two-and-a-half years of mortgage payments, the total loss will be more like $60,000 (with a banana republic loan) to $105,000 (with 10% down and a fixed-rate loan).

It's obvious they're not interested in selling--only in getting out without any financial repercussions. Sorry pal, those days have long since passed. These days it's write a $100,000 check or walk away.

By the way, those loss calculations are assuming someone buys at this pipe-dream $550,000 asking price. We all know that’s not going to happen. To provide a little perspective, if we take the 2000 price of $210,000 and factor in 8 years of a very generous 5% appreciation, this house would be valued at around $290,000. Slap down some ugly ass tile flooring (ugh) and a few countertops, factor in the foreclosure competition in the neighborhood and we’re at about $310,000.

New Selling Price: $310,000
New Down Payment: $31,000 (totally manageable for first time buyers)
New Monthly Payment: $2000 (this matches with a .30 debt-to-income ratio and is somewhat close to rents for a comparable house)
New Income Requirement: $77,500 (this is still higher than the local median household income, but it’s getting there)

So you see, this place actually is great for first time homebuyers—once it receives a $240,000 discount.

Wednesday, April 16, 2008

The Definition of Dumb

Just so we're clear on our definitions...

Investment Property [in-vest-muhnt prop-er-tee]: A property that is not occupied by the owner, usually purchased specifically to generate profit through rental income and/or capital gains.

Address: 2739 E. 10th St. 90804
Asking Price: $300,000
Year Built: 1903
Size: 3(?) beds, 2 baths, 1008 sq. ft.
$/Sq. Ft.: $298
Purchase price: N/A
Purchase date: N/A
MLS#: R800232
On Redfin: 99 days
Down Payment: $30,000
Monthly Payment: $2,000
Income Requirement: $75,000
Description: Investment property in very good conditions. It has 3 bedrooms and 2 baths new paint interior and exterior, large kitchen, living room and dining room area, front yard, a room for washer and dryer machine and the garage has been converted as a two separate rooms without permit. Ideal & Perfect for big family or first time buyers. It has parking for 6 cars with security gate and one of the rooms have an attic that could be as a storage room.

Hey, does the dishwasher come with the house? I prefer stainless steel, but I guess pink shorts will do:

I'm still unconvinced that this listing is for real, but I'll play along and assume it's not a joke.

First, now that we've established the definition of what an Investment Property is, I want to explore truth in advertising.

Definition Part One: "A property that is not occupied by the owner..."

Well, they certainly got that part right. A prospective buyer pulling in two-and-a-half times the median income (which is what it would take to afford the mortgage) would obviously be wise enough to live far, far away from this neighborhood. That security gate? You're going to need it. Furthermore, anyone pulling in the required $75,000 per year and coughing up a $30,000 down payment would certainly live in a much nicer place than this dump.

By the way, nice Christmas lights. It's mid-April, assholes.

Definition Part Two: "...usually purchased specifically to generate profit through rental income..."

First of all, "usually" purchased to generate profit? Really? Try ALWAYS. I mean, who purchases an investment with the intention of not generating profit?

Don't answer that.

So, the purpose of an investment property is to make money via rental income, eh? Let's put that to the test:

Monthly mortgage payment on this little parking lot with a roof: $2,001 (The Redfin listing indicates there is a $1.00 HOA fee)

Monthly rent on a nearby house: $1,800

1325 Roycroft Ave. , Long Beach, CA: Front House in fantastic area, close to Traffic Circle, freeways, hospital, schools, and parks, includes custom paint, new carpet throughout, dining room, pantry, laundry room with w/d, upgraded bathroom tiled shower stall with dual showerheads, walk-in closet, custom ceiling fans, wall mounted flat screen TV, stove, dishwasher, c/a beautifully decorated/landscaped backyard has stainless steel BBQ grill and dining area, Tenant pays ALL utilities, double car garage, Gardener included...

Okay, okay, they're not exactly comparable...the rental is 20 times nicer, in a better neighboorhood, comes with a barbeque grill, clean, attractive bathrooms, a two-car garage, a gardener, and a flat-screen TV, and all of the rooms are permitted. However, the rent vs. own calculations are in fact pretty close.

However, the mortgage payment does not include maintenance and repair costs on a house built at the turn of the century--LAST CENTURY. That monthly nut also doesn't include the up-front money it would take to make this sty inhabitable. And we haven't factored in the costs of bringing this place up to code. (By the way, I give them credit for trying to slip the two extra, unpermitted bedrooms into the listing description, but that is a major red flag. And my question is, if you turned your garage into an illegal aparment for your extended family and their fifth-cousins, can you still claim there is a one-car garage attached to this property?)

Once you add all of that up (not to mention the time and money spent trying to find reliable, sane tenants that would be willing to live in this craptastic hovel) you quickly realize that this little Christmas gift most certainly doesn't meet the rental income requirement of the investment property definition. Maybe they'll get it right in the last part...

Definition Part Three: " generate profit gains."

The premise of this part of the investment property definition is that you hold on to the property with the hopes of eventually flipping it for a profit. According to realtors and lenders, "real estate never goes down," so I suppose within that context this property meets the definition of an investment property. And as the mealy-mouthed commission-heads used to remind me in the comments section of this site: "Now is a great time to buy."

Let's see what DataQuick has to say about that:

Los Angeles County:

Mar-07 sales: 8,353
Mar-08 sales: 4,263
% Change: -49%
Mar-07 price: $540,000
Mar-08 price: $440,000
% Change: -18.50%

Holy haircut, Batman! In just 12 short months, the median home price in Los Angeles County was scalped by an incredible ONE HUNDRED THOUSAND DOLLARS. Not too many ways to spin that: We are at the beginning of a severely declining market and if you bought just one year ago you would be underwater on your mortgage by nearly 20%.

That means if you put down 20% last year, it's GONE. If you put down 10% and hoped to sell, you would have to write a check for at least 60 grand just to walk away with your credit intact. If you put nothing down on a median home in March 2007, then I sure hope you got a fixed rate and can afford your payment. Otherwise you're going to be another foreclosure statistic and your newly bank-owned house will only add to the inventory carnage.

The point is that if housing imploded this much in just 12 measly months, then how on earth could buying this moldy mudhut as an investment property at today's price make any kind of financial sense? If you bought this place, not only would maintenance costs eat you alive but within a few months you would be upside down on your mortgage.

But remember, the seller expects you to believe this is an investment opportunity. Let's review:

1. By definition, the owner does not live at the investment property. Judging by the looks of the place, there's no chance of investor living there. DEFINITION MET.

2. By definition, the investment property generates profits by way of rental income. Since local rents are near-parity with the monthly mortgage, this might squeak by into "definition met" territory. But, repairs and maintenance will produce negative cashflow quicker than a Britney Spears stint at rehab. Plus, nearby rentals are much nicer and competing for your renters. By definition, you need renters to generate rental income. DEFINITION NOT MET.

3. By definition, the investment property must generate profits in the form of capital gains, i.e. selling it for more than you paid. We are in a death-spiral of rapid asset depreciation, meaning buying today and expecting to extract "captial gains" within the forseeable future has about the same odds as a diarrhea-free Dodger Dog. DEFINITION NOT MET.

And while we're piling on, the listing claims "Alamitos Beach" but as you can clearly see, this ain't anywhere close to the beach. Hell, at almost two miles away from the ocean, I'm not sure this even qualifies as Alamitos Heights. Yet another example of a loser with a worthless property trying to claim a more desirable neighborhood.

Of special note, this is one of the few (or is it the only?) properties featured on this blog that has dipped below the $300 per square foot threshold. This should be a momentous occassion, but a cursory look at the house and the $298 per square foot is obviously wishful thinking.

This place will be lucky to sell for $240,000, and that's including the dishwasher.

Friday, April 11, 2008


It makes me sick seeing attempts by congress to bail out greedy speculators, home (over)builders, flippers, and people too dumb to read and understand their mortgage terms before signing. The politicians claim that taking money from me to rescue them is justified because the most important thing is "helping families keep their houses."

But these are the same panderers who claim The American Dream of homeownership is so important that every effort must be made to "ensure housing is affordable."

You can't have it both ways, a**holes.

Either you're for affordable housing, or you're for using taxpayer money to bailout the lenders, gamblers, and dolts that got us into this mess in the first place to ensure house prices stay inflated and home ownership stays out of reach for responsible, hard working people. It's as simple as that.

For all of the debate about bailout plans, everybody loses sight of the big picture: None of it will work. The return to realistic prices is inevitable--the bubble was too big and the smart money is steering clear of real estate as an investment. Although the opposite was true just a few short years ago, now the populace realizes just how unappealing the idea is of being a debt slave for an overpriced, overvalued, rapidly-depreciating asset for the next 30 years.

The government's attempts to fight the inevitable are tantamount to trying to pick up dog shit by the clean end.

Tuesday, April 8, 2008

Knife of the "Round" Table

Address: 700 East Ocean Blvd., 90802
Asking Price: 384,900
Down Payment: $38,490
Monthly Payment: $3,100
Income Requirement: $96,000
Year Built: 1965
Size: 2 beds, 2 baths, 1080 sq. ft.
$/Sq. Ft.: $356
Purchase price: $518,000 (OUCH, THAT'S GOTTA HURT!)
Purchase date: 6/2007
MLS#: P630438
On Redfin: 6 days
Description: Long Beach Iconic Architecture at its best. 'The Round Building. ' Spacious 2 bedroom, 2 bath condo located on the 21st floor. Travertine floors. Wrap around balcony views with sweeping views of downtown and the mountains. Security building with gated underground parking. Sparkling pool and gymn. Make offer subject to inspection

Ah yes, “The Round Building.” I’ll bet this place was the cat’s pajamas when it was built in the 1960’s, but now, 45 years later, it’s looking a bit ragged.

This is a cool location, no doubt. Amazing balcony too. However, like most of the condo buildings on Ocean, the HOA fine is absolutely embarrassing. $600 of non-tax-deductible, cold, hard cash down the drain every month.

I guess you get a pool that you’ll use a few times a year, and of course there’s the “gymn” (you’ll need to sing a "gymn" in church and pray that you can somehow come up with a $3,100 monthly payment for a 1000 square foot condo), but for the additional $216,000 you’re paying over the life of the loan, it doesn’t seem like you’re getting much. Take a gander at the outside of the building: Hmmm, the Association doesn’t seem to be investing much of your money into the exterior.

For that kind of money, you must be really take pride in the building you live in. In fact, this seller is so proud to live in a place that demands a $600 monthly tax just for the honor of residing there that he insisted on posting every conceivable aspect of the building instead of the actual unit.

I mean, they wasted a photo slot on an architectural diagram of the building!

What does that tell you? It tells you that the deteriorating exterior and views of a parking lot are the best features of this condo. To wit:

Not very impressive.

And then there’s the price.

$385,000 ($600,000 including HOA fines) for a condo with no ocean views, no car valet, one measly parking spot (in downtown Long Beach! Yikes!), outdated bathrooms, an old, cruddy kitchen, and no in-unit laundry. Other than the beach-adjacent location, this seems like a TERRIBLE deal even at $285,000.

I don’t know what the hell is going on with the sales history:

Jul 15, 1992 - $4,000
Jun 08, 1994 - $161,849 (603.1%/yr)
Jun 02, 1995 - $129,000 (-20.6%/yr)
Nov 26, 2002 - $285,000 (11.2%/yr)
Apr 17, 2003 - $359,000 (81.1%/yr!)
Oct 29, 2004 - $519,000 (27.1%/yr)
Feb 07, 2007 - $532,669 (1.1%/yr)
Jun 11, 2007 - $518,000 (-7.9%/yr)

What I do know is that this groovy little condo is trying to unload for a little more than its 2003 price. Just take a moment and let that swim around in your skull: All of the so-called “value” and “equity” that built up during the last half a decade has vanished like a sparrow fart in the wind.

By the way, considering how quickly the housing meltdown has unfolded so far, is 2002 pricing that difficult to imagine? Five years of value disappeared in 10 months and realtors and commission-heads expect you to believe we’ve approached the bottom? Any talk of Southern California housing price declines nearing a bottom is utter nonsense and you, like this seller, are doomed if you buy into it.

I know it’s boring (and aggravating to some) to hear me constantly admonish you not to buy LB real estate until fundamentals reach near-parity, but you don’t need me to explain the danger of buying in this rapidly declining market; just look at what happened to the poor chump who bought in June 2007 for $518,000.

This knife-catcher thought he was stealing the place by paying "below the 2004 price." It is a temptation that I’m sure many of you are faced with. I mean, after all, a 20% or 30% discount is awfully difficult to pass up when shopping for anything; cars, clothing, furniture, etc.

However, what many people fail to account for is that HOUSING PRICES WERE ALREADY INCREDIBLY INFLATED BY 2003. If Nordstrom gets you into the store with a “Half-off Sale,” but mark up their suits 110%, it doesn’t seem like such a good deal anymore.

For proof of how overpriced houses were in '03, just look at the difference between the 2002 and 2003 prices: $74,000 appreciation in six months?? Prices were already rapidly detaching from market fundamentals, and only got crazier from there.

My point is, the June ’07 knife catcher got suckered by the prospect of a significant discount and is paying a -$133,000 penalty for that horrendous decision. Still thinking about jumping on that "bargain" down the street? According to the numbers, you'll be jumping on a live grenade.

Wednesday, April 2, 2008

"To you. Only to you."

Address: 464 Cherry Ave, 90802
Asking Price: $475,000
Year Built: 1911
Size: 2 beds, 2 baths, 1196 sq. ft.
$/Sq. Ft.: $397
Purchase price: $637,500
Purchase date: 7/2006
MLS#: P622225
On Redfin: 49 days
Description: [Left blank by listing agent]
Down Payment: $47,500
Monthly Payment: $3,100 (that doesn't factor in the maintenence costs on a 100-year-old house with no interior photos)
Income Requirement: $118,750 (Four times the local median income!)

You all know how I feel about anything on, near, or past Cherry, so I won't elaborate further on the undesirability of this neighborhood when the housing budget is approaching half a million dollars. Instead, I want to focus on the financial meltdown occurring here. Rough calculations inform us that if this seller manages to find a sucker to pay full asking price, the loss will be -$200,000 in a tragically brief year and a half.

The worst part is that this place, positioned directly on a busy street (good luck backing out of your driveway in the morning) in a questionable neighborhood, has no chance of selling at this price despite the stark price reduction compared to the 2006 purchase price. I mean, who in their right mind would jump in now on this place, given the fact that we just witnessed a 30% price disintegration on it during the last 20 months? What on earth would lead someone to believe there isn't another 30% haircut coming?

By the way, another 30% off would put it right around the 2003 price. The few properties selling in Long Beach have already rolled back to 2004 prices, so why not 2003?

It's worth noting that the listing agent only put up one picture, indicating a drive-by-and-take-a-picture-from-the-car-window-because-even-the-realtor-knows-this-place-doesn't-have-a-hooker's-chance-in-Eliot-Spitzer's-hotel-room-of-selling-at-this-price attitude. Plus, the listing agent has had 50 days to write a description and still nothing. Do you sense the level of frustration? He must have 30 of these properties on his roster.

It's clear that the so-called "equity" built during the last few years of reality-resistant appreciation was straight up Monopoly money. It's been erased completely, and whatever hopes newly-underwater '05 owners had of selling their home for "break-even" are rapidly showing up on milk cartons. I wish I could say Long Beach sellers are bright enough to accept that harsh reality, but I have yet to see any clear evidence.

A recent piece in the New York Times clearly illustrates the psychological factors at play across the country and in Long Beach in particular:

In the wake of the biggest housing boom on record, it’s understandably hard to accept a new reality. Robert Glinert, a real estate agent in the Los Angeles area, said he has recently been saying no to almost half the sellers who have asked him to represent them. Their initial asking price is just too unrealistic.

“People say, ‘I don’t care about the market — my home is still worth what I paid for it in 2006,’ ” Mr. Glinert told me. “And I say, ‘To you. Only to you.’ ”

In my opinion, the longer it takes for sellers to understand the derelict domicile they overpaid for just a few sweet years ago has no chance of selling at current prices, the worse the pain will be. Given the rising inventory and increased bank-owned properties adding to the competition, 2002 prices--especially for less desirable properties--aren't very far off.

At least this particular seller has seen the light. Hallelujah, he's seen the light! Sadly, the rapidly approaching light belongs on the grille of a Peterbilt turbodiesel badly in need of a brake job.