Saturday, September 27, 2008

Volk You, Buddy!

Address: 3057 Volk Ave, 90808
Asking Price: $649,000
Year Built: 1954
Size: 3 beds, 3 baths, 1,900 sq. ft.
$/Sq. Ft.: $342
Purchase price: N/A
Purchase date: N/A
MLS#: P654927
On Redfin: 21 days
Down Payment: $129,800
Monthly Payment: $4,000
Income Requirement: $162,000
Description: This home is a great opportunity for the Rancho buyer who desires the clean modern architecture of Cliff May combined with extra living space and storage areas. Set on one of the largest lots in the tract - 6200 sqft - this home features 1527 sqft in the main house and a permitted casita of approximately 400 sqft. Upgrades to the home are numerous: separate indoor laundry room, 240 amp electrical service, air conditionaing in both the main house and casita, separate water heaters for the master bath and casita, and an intercom system. Located on one the nicest streets in the tract, this property is a short walk to the lakes, paths, wildlife and nature center of 800 acre El Dorado Park. This home is by far the best value in the Ranchos.


I’ve never featured this area of Long Beach before, but today I decided it is worth exploring. This development, what many call “Rancho,” is bordered by Lakewood and Hawaiian Gardens, adjacent to El Dorado park, and is by all outward appearances a nice, clean, middle class community. The median household income is around $74,675, which is about 20 grand higher per year than the rest of the state.

The reason I decided to focus on this area, which couldn’t be further from where I want to buy (but I can certainly see the appeal for families), is because there are some interesting things happening here. And by “interesting” I mean “delusional idiots who foolishly price like it’s the summer of 2005.” You know, interesting.

Before we get too far into this listing, let’s reiterate some pertinent information from the description: This is a 1527 square foot, 2 bedroom 2 bath house we’re talking about here. Yes, there is a diminutive 400 square foot studio (“Is this a casita for Ants?!) in the back yard--which I doubt is fit for adult habitation--but it’s a bit disingenuous to list this as a “1,900 square foot 3 bed/3 bath.”

And don’t try to tell me that casita is the equivalent of a back-house and could be a source of rental income. At 400 squares? NINJA loan, please.

So, back to the main house. It’s obviously unoccupied, which draws attention to the weird staging. The furniture is sparse, small, and doesn’t even fill up the rooms. I mean, they are asking a wallet-nuking $650k for this place and they couldn’t even provide proper staging?

Speaking of $650,000, please take a gander at the kitchen and tell me it’s what you pictured in a house asking almost TWICE the median Southern California home price.

Look at those cheap, nasty fluorescent lights! Yuck! You just know there are countless dead bugs decomposing on the other side of those yellowing, dated plastic covers. And nice Home Depot bargain bin cabinets with NO HARDWARE. Not very “Modern/Hi-Tech” as your listing information so boldly lies—ERRR, claims.

And I can’t quite tell from the photos but some of those appliances look very outdated. Add to that the old countertops, and the (fantasy) buyer has a major renovation on their hands from day one. I mean, I thought realtors coined the phrase, “Kitchens sell houses!"

You know what else sells houses? Bathrooms. Out of three bathrooms to choose from, you know how many pictures were provided?

Whoever guessed ZERO, come on down and claim your prize!

Anytime bathroom or kitchen photos have been withheld, it’s a reliable bet that there’s a very specific reason. In other words, they are likely scary and decrepit. So, instead of bathrooms, we get what the realtor obviously believes are the “best,” most representative pictures to snag a buyer. To wit:

And here it is again.

And again?

Really? The lawnless backyard is the best aspect of the house? So good in fact that you had to show three different angles of the same thing?

This pricing makes no sense. It is simultaneously the most expensive AND the least upgraded house in the neighborhood. This is going to sound crazy, so bear with me, but I think this person might be, well, greedy.

I know! I know! That sounds so nuts! I mean, everybody knows greed plays no part in real estate. Maybe there's oil buried beneath the house?

Cliff May designs may be popular (get it?), but it doesn't take Nostradamus to predict this place will NEVER sell for $650,000. Who knows, maybe ol' Cliff pulled a John Delorean and stowed kilos of coke in the walls of each house he designed. That's about the only way to justify this Delusual asking price.

Judging by the lack of available records, I have a feeling most Rancho sellers are empty nesters trying to extract as much as they can before they retire, but waited too long to pick up a newspaper. They will pay dearly for their unfortunate timing and will get stomped by market fundamentals the longer they fight the new realities.

It’s a good thing the (first of many) stimulus package temporarily increased the conforming loan limit, because assuming you could come up with a 20% down payment of $129,800, you would still be way over the $417,000 limit and would need a jumbo loan. In case you haven’t heard, Wells Fargo just hit the panic button on jumbo loans and is now pricing in risk to the tune of 9%!

Which begs the following questions:

1) How quickly do you think other banks are going to follow suit?
2) How many pairs of trousers will be soiled when sellers of luxury houses get wind of this and desperately chop prices to meet the conforming limits?
3) When luxury houses are priced to get under conforming limits, what do you think
that’s going to do to the prices of decidedly non-luxury average abodes like this one?

Rising interest rates are going to absolutely CRUSH prices. Not to mention rising unemployment (people without incomes don’t buy houses) and continued foreclosure activity from the $300 Billion in Option ARM loans coming down the pike.

Although I certainly don't think we're entering the second Great Depression, housing is going to be in serious trouble for years and years. With Fannie and Freddie being pretty much the only remaining mortgage writers, buyers have to meet their rigid income requirements.

Unlike when there were all sorts of wacky sleight-of-hand loans that practically eliminated any affordability hurdles, this New World Lending Order will ultimately determine how much houses cost. It's not what you can afford to pay, it's what somebody is willing to loan you.

This rare subset of eligible buyers, assuming they made $100,000 annually ($25k more than the median income for this zip code!), would still be priced out of an average house like this. In fact, to afford this mediocre pad (which admittedly does have a lot of potential) F&F would require them to magically come up with another $60,000 per year in income before they would qualify for a loan.

To put it another way, if our new buyers made $100,000, the most they could afford to pay for a house is $400,000--and even that's stretching it by assuming no other debt load. $400k is the magic number where debt-to-income meets strict lending requirements. This house asking $650,000 suddenly starts lopping off $100,000 at a time to find an eligible buyer.

Does that help to explain why house prices are going to continue to be systematically dismantled during the ensuing years?

Side Note: This is really strange. I asked my mom about Rancho because the home I lived in for the first year of my life was somewhere in that area. My folks bought a Cliff May model in 1975 for a whopping $75k. She says it was and is a nice area with very small homes.

She couldn't believe some of the asking prices--especially considering this is a tract for working families, not Rockefellers. Just browse the nearby listings. Completely original, run-down shit shacks are commanding more than half a million. It appears as if this whole neighborhood is a few fries short of a Happy Meal.

Anyhow, this is where it gets weird: Our place was on the same street and literally seven houses down from today's featured property! Crazy, right?

Judging by the nearby comps, if my folks had held onto their little bungalow until today it would have appreciated nearly $500,000!


  1. I love those Cliff May houses! Way, way overpriced, though, including the others in that area. How are the schools/crime up there?

    Unfortunately, the areas of OC that have small clusters of mid century modern houses are also still way overpriced. Just as I love them, others do too, and so they are slower to decline.

    But just wait!


  2. These prices for these houses are just blowing my mind--as someone who is looking for a little house to start a family in a decent (read: boring) part of LB, I am stunned for what people want for these shoeboxes. This is one of my favorites, been on Redfin for over 400 days. I'm curious as to why the seller thinks it worth what it's worth--maybe oil in the backyard?

  3. Looks like we're all in the same boat! I have been looking in the 90815/90808 area and I agree...totally still overpriced.
    On a slightly unrelated topic, I have a question that I was hoping EB or someone else could answer. From time to time, I see a home with a sales history that includes a RIDICULOUSLY low price. Here's an example:
    So in May, someone bought it for a grand???? No way!
    I've seen other properties that are listed as being sold for anywhere from $5000 to $100,000 when the homes values are literally 500,000 over that! Any idea what is going on here? Are these errors? Are these part of an inheritance and the ownership is being transferred? I'm about ready to call shenanigans so someone please inform me otherwise.

  4. FreedomCM,

    Frankly, I don't know much about the schools, but unless anyone tells me differently I think it's a nice part of LB. Quiet, mostly families.

    In all honesty, I would LOVE to own a house with this type of architechture and layout. Deck it out with modern furniture and maybe a little pool...sweetness.

    I agree, there is definitely more demand for these quiet, cool little tracts. Plus, I think the relatively good incomes and the amount of decades-spanning owners number will keep values here fairly sticky. But nobody is immune, and while it may take longer than most other areas, it will come down to reasonable levels.

  5. Anon,

    That house on Mira Mar is amazing. I will write a feature on that property. The DOM alone demands it!

    I mean, what are these people thinking after the 400th day? "Real 'state's gonna turn 'round any day now, Myrtle. Jess yew watch."

    Quiet, dim-witted optimism.

  6. Katy,

    That's a great question and I don't have a definitive answer for why an extremely low price is sometimes listed in the sales history.

    I'm no expert, so if anyone has any insight on this topic, feel free to contribute.

    Anecdotally, I did hear about one person who bought a home from her mom. The daughter did this to A) Get a discount from the appraised value care of Ma Dukes and B) Avoid a huge property tax bill.

    However, before the house was sold, it had to be reappraised and I think that was calculated at the mom's tax basis since it's going to the daughter. Well, mom's tax basis, since she owned the house for so long, was next to nothing. BUT, the house was now worth hundreds of thousands more than when she bought it ages ago. So, taxes have to be paid on that amount. I guess the daughter's thinking was those taxes would be less than buying a different house, with the daughter's higher tax basis, so why not take advantage of the deal?

    So, in the house's sales history, there is a
    "sale" for $75,000 on a house that the daughter bought for $800,000 in 2005 (I know, I know). Sometimes the transaction listed in the history could actually the difference in taxes associated with the transfer of title.

    Or fraud, or a typo, or who knows.

    Sometimes you will see a HIGH price in a condo's sale history--which can actually be the price paid for THE ENTIRE BUILDING.

    For this reason (among many), public records are imperfect. And this is why I believe buyers should check rent vs. own and zip income to determine value. I am guessing that high AND low "sales" can skew comps. Plus, with the sheer amount of fraud and straw buyers during the last few years, a nice percentage of "comps" were pure bullshit.

    As Flava Flav once said, "Can't truss it!"

  7. my wife and i live in one of those CM houses right around the corner (they're pretty much all CM's designs in the hood)

    The one we're renting is VERY hot (lots of glass-no insulation-no attic etc) has LOTS of termite damage (they LOVE them some Cliff May) and is surprisingly pleasant (after i had the landlord put in AC)

    This hood is an island of old school mid 50's american surburbia in an increasingly 3rd world ocean. The schools? Millikan high is a 3rd world hell hole. Whenever i see the busses rolling by i think of prison busses....Fat degenerate dull looking kids go there. The elementary schools are better though. Stores galore. The park is close. They built a skate bowl for the skate rats....
    overall i give the hood an 8. That place is overpriced.

  8. Anonymous,

    Thanks so much for the on-the-street insight!

    That's right, Millikan is around there. Long Beach isn't exactly known for their amazing schools, which makes these prices even more insane.

    What do you suppose the difference between what you pay in rent and a mortgage is?

  9. Auction results from West Ocean Two building in Long Beach:

  10. I just love this blog! I get so much great info. But speaking of knife-catchers...check out this February Flipper in the same zip as the Volk property... So lemme see if I have this straight...housing market is already taking a dive in February, and this dude buys this property, puts in paint and tile and then tries to flip it for almost 200k profit about 60 days later. Do I have that right? But wait...maybe I'm being unfair! Look! It says it’s been "Breathtakingly Remodeled"! There's new plumbing! And how about those "Barzialian Cherry" floors? Right? And I guess it must be exciting to sit in your yard sipping tea and watching traffic. Not to mention the peaceful serenity of being lulled to sleep by the sounds and smells of diesel trucks. And that is quite possible, as the map of this property clearly indicates that the 605 freeway actually bisects the living room. Well he has now lowered the price on this gem and is willing to accept only 100k profit. But I suppose that is the price you have to pay for all of those "lavish upgrades"....

  11. Katy,

    Do you have a link? Sounds like a perfect candidate for the blog.

  12. What do you suppose the difference between what you pay in rent and a mortgage is?"

    well, we're renting $2000 a mo. right now (3BR 2bath) which is pretty good for the area (though i've seen $2500-$2700)

  13. Hey el bee!
    Just wanted to let you know that they just re-listed the Volk property....yes, thats right, after almost a year on the market without success, they are starting all over again...AT EXACTLY THE SAME PRICE!!! Hahahahaha!
    Also, for fun...take a look at this one...I call this "Sweatin' like a whore in church":
    Oh...and one last thing...ever consider setting up a facebook account to link up the blog with? Lots of LB folks are on there...