FHAIL.

Address: 1001 Belmont Ave #210, 90804
Asking Price: $270,000
Size: 2 beds, 2 baths, 1000 sq. ft. (built in 1989)
$/Sq. Ft.: $270
HOA Fee: $235
Purchase price: $400,000
Purchase date: 3/2007
MLS#: P655224
On Redfin: 23 days
Down Payment: $54,000
Monthly Payment: $1,900
Income Requirement: $67,000
Description: This is very nice unit. This is a short sale that needs back approval for sales price and commions.

I give realtors a lot of crap for filling listing descriptions with meaningless, superfluous crap ("LIte an' Bryte!", anyone?), so you really have to appreciate a description this short and efficient.

By “short” I mean two sentences, and by “efficient” I mean cramming so many grievous errors into so few words. Excellent work! You clearly have a passion for real estate!

This listing just screams, waving the white flag. Not even a shred of effort expended. The realtor knows this place is Melba toast, and probably has 35 more just like this on her plate.

Let’s go down this apartment's list of impressive attributes:

Six photos of the building’s exterior (three of which are doubles), and zero interior shots? Check.

Short sale with absolutely no chance of approval? Check.

Undesirable area of Long Beach? Check.

Nearby properties selling for much less? Check.

Relatively high HOA for the shady ‘hood and sparse amenities? Check.

Already reduced $19,000 with no bites? Check.

Almost 33% off last year’s (fraudulent) sales price? Check.

On a Hopelessness Scale of 0-10, with "0" representing a Twinkie’s chance in Kirstie Alley’s house of selling, and "10" corresponding to an easy sale above asking price, this rates a solid .5.

Think I’m being too grim? After all, it is relatively new construction. The outside doesn't look too bad, how horrendous could the interior be? Also, 1,000 square feet seems pretty reasonable.

Well, a little research revealed a bonus factor that will guarantee no sale at any price:

The building is not FHA approved.

That’s right folks. The Federal Housing Administration, which is the only game in town for low-income buyers now that down payment assistance programs are largely extinct, has deemed this building an investment black hole.

And you better believe this is a low-income neighborhood. The largely immigrant population in this zip (50.5% of residents speak English at home) pulls in a median household income of $35,000. In a neighborhood like this, the FHA is pretty much the only hope. And if the FHA won't guarantee loans, potential buyers evaporate like a piss puddle in Dubai.

This intractable situation has inspired a new RE in the LBC term:



And let’s pretend you can find a lender willing to overlook the fact that the FHA, backed by the (apparently) endless reserves of the US taxpayer, is scared shitless of insuring loans in this building because of rapidly falling values. It’s virtually guaranteed that the lender would ask for considerably more than 20% down to protect its investment.

How many families raking in a paltry 35 grand a year do you suppose have $60,000+ lying around in Yuban cans?

I’m going to guess less than zero.

And do you think that family scraping by on the median income, probably having difficulty even coming up with the FHA’s minimal 3.5% down payment requirement, is going to get a smoking deal on their interest rate?

"Negative, Ghostrider, the pattern is full."

This place is DOOMED. Prices in this building are going to absolutely collapse. Remember, it's not what you can afford, it's what someone is willing to lend you. No lending means prices have to be low enough to attract cash-only buyers. We're not even close.

And the idea that the Banker Buddy Bailout will suddenly encourage banks to turn the lending spigots back on and once again allow people to spend eight times their annual income on places even the FHA is afraid to touch is ridiculous to the point of offensiveness.

I’ll say it again: The root problem of all of this is that house prices are too high. Period. Until that changes, there will continue to be blood in the financial streets.

Lower prices mean buyers can can facilitate mortgages without going bankrupt. This income/payment parity encourages banks to start lending again. More lending means more jobs, which means more potential buyers. When prices lower to rent vs. buy fundamentals, more people see the value in owning over renting. The newly employed add to the ranks of the former renters, which in turn creates more demand, lending, jobs, and price increases…all resulting in more taxes for municipalities, stabilized home values, and an economy on the mend.

Obviously that’s an oversimplification but the idea that artificially inflating home values will solve any of our core economic problems is a tub of fermented hogwash. Some argue if prices continue to drop, there will be more foreclosures. That's true, but we need to purge the system of overextended people who could never afford to buy in the first place. If prices come down to affordable levels, there will be plenty of qualified people to snap those distressed properties up.

And most importantly, these new buyers will actually be able to afford their payments, making them better borrowers. They will pay their principal, interest, and property taxes for 30 years, and not just for 24 months until the interest rate resets like so many did in SoCal this last few years.

And I know you struggling loan-owners out there, paying double what it would cost to rent the same exact floorplan, don’t want to hear that prices have to come down even further. I get it. And you also don't want to hear there’s not a goddamn thing the government or 300 million taxpayers can do about it. Again, I get it. I wouldn’t want to be in your shoes faced with those ugly facts either.

But that doesn’t change reality, and unfortunately, lower prices is the only way our economy will get back on track without completely bankrupting our country.

Have a great weekend, everybody.