A 10-Year Plan

Lately I've noticed the bottom-calling is growing in fervor and frequency, and real estate "professionals" are becoming more aggressive with their optimism.

In fact, just today my cousin sent me a newsletter from an Orange County Realtor (yep, totally unbiased source) claiming buyers waiting for a bottom in houses below $350,000 have "already missed it" and "under $250,000 there is actually a shortage of good houses to buy!"

His primary justification for his sunny outlook seems to be that sales are up from last year and certain distressed properties are garnering multiple offers.

One more time, for the kids in the back eating Elmer's glue: If a home is priced correctly, it will sell quickly.

Duh.

This isn’t mapping the human genome, people. It’s a pretty simple concept.

And what this used house salesman failed to acknowledge is that an increase in homes selling at bargain bin prices does not constitute a bottom. In fact, it is an ominous sign of just how powerful distressed properties are relative to the overall housing picture, and how the (still) incredible amount of foreclosures will guarantee further downward pressure on prices. Record number of foreclosures = no bottom in sight.

Which brings us to today's property. I have a feeling a knife catcher, believing the bottom is nigh, will swoop on this bento box of a condo in the next few weeks. Yes, it’s still overpriced according to fundamentals, size and location, but the initial asking price is somewhat reasonable and demonstrates a willingness to accept reality. Sellers who price realistically and are willing to deal typically find sellers.

Again, duh.

Address: 514 Obispo Ave #C, 90814
Asking Price: $262,000
Size: 2 beds, 1 baths, 818 sq. ft. (built in 1979)
$/Sq. Ft.: $320
HOA Fee: $225
MLS#: P666269
On Redfin: 5 days
Income Requirement (3.5X): $75,000
Down Payment: $52,400
Monthly Payment: $1,700
Description: This is a darling top floor, front 2 bedroom unit that has been remodeled and ready for a buyer to move in. This unit is bright with tons of light, vaulted ceilings, balcony off the dining area, big living room with fireplace and a fantastic detached double car garage. Excellent opportunity for your fist time buyers! Pet friendly building where most of units are owner-occupied.

[UPDATE: Reader DAve pointed out something I missed in the listing description. Did you catch it? "Fist time" buyer. LOL! That's a pretty apt description for the buying experience in this economic environment.]

This place was purchased for $289,000 in October 2004, and is now priced $27,000 (nearly 10%) less than that just four years later. If this condo sells for today’s asking price, the loss to the loanowner after commissions will be $42,000. Not a terrible loss compared to most of the carnage we’ve seen, but still pretty vicious.

Notably, this property is priced firmly in 2003 territory. Six months ago, practically the only properties moving were priced in the ’03 zone. But is that enough in this brutal, ever-worsening economic environ? Or will places like this cross the border into 2002-istan to nab a sale? And what are the chances they dip into 2001 pricing?



But let’s say you’re like most knife catchers out there and you don’t give a damn about being underwater for the next few years. 2001? 1996? Who cares?! You’re buying it to live in, not to check the median home price every week, right?

You’re tired of renting, you want a place you can paint any color you want (I highly recommend a neutral color in the kitchen--yeef!) and you believe the bottom is here so you're not concerned about depreciation.



You want a place to call your own, Realtors in the know are telling you the bottom has already been reached, and you want to make a move on this condo. Then let’s pencil this thing out!

Your monthly nut, including principal, interest, taxes, insurance, and HOA, is about $1,700 a month. That’s a lot of money for one person, but you are building equity and will benefit from a tax refund (which will largely be eaten up by ancillary ownership costs, but still).

Maybe you can rent out a room to help offset that mortgage payment. The good news is there are two garage spots. The bad news is you’re sharing a miniaturized 818 square feet and a bathroom with a roommate. But additional income, even at the cost of privacy and enjoyment of your new (used) apartment, is money in the bank after all.

It’s also a good thing you don’t care about crunching the Rent vs. Buy numbers. If you did, some nearby rentals might bum you out. For example, there’s a 2 bedroom with hardwoods, a bit closer to the ocean (383 Obispo), asking $1,450 a month.



There’s also a 2 bedroom /1 bath about five blocks closer to the ocean (3109 Corto) asking $1,100.



But forget all that!

Remember: building equity, tax benefits, painting whatever color you want, roof over your head, bottom is here.

Maybe the bottom callers are right and we should stop treating our largest single investment as, um, an investment, and look at it as shelter instead. According to the bottom-calling Realtor’s newsletter, buyers should start also thinking long-term, like 5-10 years, when it comes to a home purchase. And he's right.

Of course, he forgot to mention that people buying today have no choice but to think 10 years into the future.

This is because after another year or two of continued depreciation, followed a few years of little to no appreciation, a decade is about when buyers of this condo could conceivably break even after sales commissions. And if ten years from now there is strong demand for tiny condos with one bathroom, today's buyers might even make enough to move up to a detached home.

I, like many Realtors, strongly encourage the future buyer of this apartment to adopt a 10-year mindset--but not just financially. I want you to think lifestyle.

In your mind I want you to imagine sharing 818 square feet and a bathroom with your future wife every single day for the next 10 years. And I assume you’ll want to start a family within the next 5-10 years too, so I want you to imagine, in perfect detail, the fun and excitement of raising a family in this condo.

Yep, just imagine all the fun you’ll have living here for the next decade! There’s no yard, so forget about all that boring upkeep. Just get your kid some goggles and tell him your non-matching black oven is the Death Star! Fun!



There’s no balcony, so you’ll spend every single waking moment in extremely close quarters with those you love most and never get tired of! Isn’t that great?

Plus, with shared walls, you’ll have an incredible sense of community. Why, I’m sure you’ll love living above and adjacent to nine other units for the next decade.

Wait, where are you going? And why are you running?! Sir, we haven't finished filling out your mortgage application! Come back! PLEASE!!!1!

Arigato: UPDATE II

Over at the Irvine Housing Blog Forums, Morekaos noted that a favorite delusional Belmont Shore seller has mercifully dropped their asking price by $200,000.



Before you get too excited, you should acknowledge just how ridiculous their original asking price was.

If you remember, this Asian-inspired oddity came on the market in August of 2007 with a distinctly WTF price of $3,250,000. In November the seller lopped off almost half a million, then increased the asking price by $200,000 just five days later.

Their New Years resolution for '08 was apparently to not be such an insufferable idiot, and in February of 2008, the price was reduced to $2,785,000.

And there it stayed.

For nine months.

So much for that resolution.

But just a few days ago the asking price was reduced to $2,575,000. After 470 days on market, I think it's a meaningless gesture. I think by now, regardless of price decreases from this point forward, this property is tainted. The sellers have ably demonstrated they're greedy and unreasonable, and I think most people, after having watched this novelty item rot on the market for so long, can clearly see it for what it is: an overpriced albatross deserving ridicule.

Have a great Thanksgiving everyone. I'm thankful for many things, including having a great job, an interesting family, loyal friends, and my health. You shouldn't need the Thanksgiving holiday to count your blessings (just like you shouldn't need Valentine's Day to tell people you love them), but it's a great excuse to let those around you know just how much you appreciate them and what they mean to you.

Sellers, Meet Reality. Reality, Meet Sellers: UPDATE II

That didn't take long. Just two days after I reported this property perched upon leased land had gone contingent, it has been reverted back to an active listing.



Buyer's cold feet? Unable to secure funding? Realtor's trick to spur interest?

We'll probably never know.

But it sure is fun to watch, no?

Does a Short Sale Count as a Comp?

In the comments section of Pricing Problems , Anonymous says:

"Retard, the one listed for 300,000 is a short sale. You can't compare the two."

Wow. I haven't heard that tired argument for quite some time. I thought that misguided thinking gave up the ghost in 2007.

There is some debate about this topic, no doubt. And every situation is different. In a normal market, one isolated distressed sale should not be considered a comp for an entire area. Doing so would be foolish.

But you also need to remember this is not a normal market.

In fact, foreclosures now account for 40% of all LA County sales. Are you arguing those distressed sales shouldn't "count" as comps?

Anonymous (if that is your real name), please enlighten us. I'm genuinely curious as to how you convinced yourself short sales, which are only approved when banks determine market value has been met (or did you think they just arbitrarily threw darts?), should be completely ignored as comparable sales.

Sellers, Meet Reality. Reality, Meet Sellers: UPDATE

This condo I featured last week, perched upon leased land, has gone contingent. As you know by now, going contingent and actually making it out of escrow are completely different animals. Nevertheless, for now it appears their dramatic price cutting efforts have paid off. Nice work.

Back From the East Coast with a Quickie:

Address: 207 E Broadway #301, 90802
Asking Price: $553,000
Size: 1 beds, 2 baths, 1310 sq. ft. (built in 1925)
$/Sq. Ft.: $422
HOA Fee: $327
MLS#: S537137
On Redfin: 153 days
Down Payment: $110,600
Monthly Payment: $3,700
Income Requirement: $158,000
Description: SHORT SALE APPROVED AT $553,000!

Well, considering it was priced $4,000 cheaper for 150 days AND STILL FAILED TO GARNER ANY BUYING INTEREST...best of luck with that!

Dumbest. Seller. Ever.

I've been watching this property (with amazement) since the inception of this blog, but have never featured it before. The primary reason is that it's not polite to make fun of the mentally retarded.

You see, this apartment has spent 622 days on the market with absolutely no interest--yet during that time the price has only been reduced twice. And despite racking up more than 20 months on the MLS, those price reductions have totalled less than 4%. Yep, that sales strategy can only be explained by a seller with severe mental deficiencies.

Address: 1401 E 3rd St #15, 90802
Asking Price: $490,000
Size: 2 beds, 2 baths, 1220 sq. ft. (built in 1964)
$/Sq. Ft.: $402
HOA Fee: $262 (That seems awfully high considering the lack of amenities)
Purchase price: N/A
Purchase date: N/A
MLS#: K706733
On Redfin: 622 days
Down Payment: $98,000
Monthly Payment: $3,200
Income Requirement (3.5X income = realistic mortgage amount): $112,000
Description: THE DIPLOMAT, 2BEDROOM, 2BATH TOP FLOOR PREMIUM UNIT IN THE BUILDING WITH LARGE PRIVATE BALCONY. LONG BEACH AND PALOS VERDE VIEW. .HIGHLY UPGRATED WITH GRANITE COUNTERTOPS, STAINLESS APPLIANCES, CROWN MOLDING , CARRARA MARBLE TILED BATH, INSIDE WASHER AND DRYER, INTERCOM ACCESS, PARKING SPACE INSIDE GATED SUBTERRANEAN GARAGE. CLOSE TO BEACH , SMALL BUILDING, ONLY 16 UNITS, JUST A FEW 2 BEDROOMS

The listing agent, in addition to committing realtor malpractice for failing to convince their reality-impaired client to meaningfully cut their certifiably-WTF price, has had 622 days to write a comprehensible listing description and provide pictures of the "UPGRATED" interior.

Epic FAIL on both counts.

And after reading that poor excuse for a description, it appears as if the realtor is also mentally challenged (or at the very least illiterate).

Helluva team!



Asking $402 per square foot in this neighborhood, this close to the sketchy parts of downtown, with this few amenities, can only be explained by mental disability. Or a severe allergy to current events. Either way, just what the f**k are they thinking after 622 days on the market? "Any day now"??

To put into perspective just how ridiculous this asking price is, let's play a game of Would You Rather!

If you clocked more than $100,000 per year and wanted a sweet pad, would you buy this overpriced apartment with no interior photos, or would you rather save $40,000 and buy this nearby 1,100 square foot loft:



At least they bothered to provide photo evidence of the "UPGRATES." Plus, after 271 days on market they might be willing to deal on this modern, sleek loft.

Or, would you rather buy this nearby condo with upgraded bathrooms and floors (our mental midget at 1401 only has carpet) for $319,000:





If you bought this tidy little place, with a price unchanged since April and 393 total DOM, you'd have enough left over to buy a car commensurate with your six-figure income ($112,000 is four times the local median income, you big baller!) like a Beluga black Bentley Continental GT with a turbocharged 6.0L W12 under the hood:



Helpful hint: Definitely keep it garaged in this neighborhood.

Anyhow, by refusing to accept reality, all of these idiots (but especially the dolt asking $490,000) do nothing but clog up the MLS and prevent responsible, informed buyers from being able to enter the market and have their shot at The American Dream(tm).

Three adjacent properties; a combined 1286 days on market.

I can think of several words to describe that little statistic, but none better than


Greedtarded.

Sellers, Meet Reality. Reality, Meet Sellers.

According to this MSNBC article, home sellers are in denial about their house's value. Wait, really? Thanks mainstream media for bringing this to our attention!

Here is the lede:

The housing market may have gone bust, but many homeowners are still living in a bubble.

Despite dismal housing headlines and reports showing falling prices nationwide, owners in some once-hot areas still believe their home is gaining value or at least holding its own. And by hanging onto too-high expectations, sellers are unwittingly keeping the market from finding a bottom.

No shit, Sherlock.

You got a team of monkeys working around the clock on that one, do ya?

Any reader of this blog, or any housing bubble blog for that matter, have been aware of the greed and delusion of ignorant loanowners for quite some time. And although the mainstream media is a little late to the party, at least they brought some good scotch.

The article goes on to explore an actual loanowner who finally saw the light and priced accordingly--despite absorbing some substantial losses.

It took John Cicero and his wife an appraisal, some convincing by their real estate agent and some hard-to-swallow facts to get them to lower the $525,000 listing price on their five-bedroom home in Valrico, Fla. They closed two weeks ago for about $380,000.

"We didn't really understand the severity of the market," Cicero said. "We lost close to $100,000 in equity so we were walking away from real money."

They built the stucco home four years ago for $380,000 and poured more than $80,000 into it, putting in hardwood floors, granite countertops, ceiling fans, blinds, drapes and a built-in surround-sound stereo system. They also expanded the deck by the pool, turning it into what Cicero called an "executive entertainment area."

"You think you have this wonderful home and people will want to buy it," he said, "but you're wrong."

This example of reluctant--but inevitable--capitulation brings us to today's featured property. This apartment has been molting on the market for 127 days with no action.

The reason? An original asking price that screamed delusional "My property is special!" attitude. However, unlike the Florida couple, it didn't take long for the loanowner to see the writing on the wall, and their dream of a Greater Fool rescuing them from financial Armageddon has been dying a slow, painful death ever since. The question is, with his 25%+ discount, has he capitulated enough to nab a sale?



Address: 5190 E Colorado St #305, 90814
Asking Price: $309,999
Size: 2 beds, 2 baths, 1,106 sq. ft. (built in 1984)
$/Sq. Ft.: $280
HOA Fee: $685
Purchase price: $439,000
Purchase date: 6/2006
MLS#: P645610
On Redfin: 127 days
Down Payment: $62,000
Monthly Payment: $2,600
Income Requirement: $88,571
Description: WOW!!! SEE REMARKS!!!! Totally stunning top floor unit with all the amenities including cozy fireplace, remodeled gourmet kitchen with granite countertops, gleaming wood floors, lovely patio with tree-top and partial water views...Gorgeous!! Location, Location, Location- Accross from Marine Stadium, the beach at The Colorado Lagoon, 2 golf courses, steps to Belmont Shore and much more...WOW!

WOW!!! This realtor managed to write a 55-word description with only one spelling error! WOW!



When this apartment was first listed on the MLS on July 7, 2008, it came with a laughable price tag of $439,900. That’s just 900 clams more than he paid exactly two years earlier. Although a sale at that price would result in a loss after commissions, the seller, full of bravado and delusion, steadfastly refused to believe the condo was worth less than what he paid for it.

It took just one week to be disabused of that misguided notion. On July 15, the price was quickly reduced by $40,000.



Several more price cuts followed, but August was when things went haywire:

Aug 06, 2008 - Price Reduced to $384,900
Aug 14, 2008 - Price Reduced to $310,000
Aug 19, 2008 - Price INCREASED to $339,900 (greedy habits die hard, eh?)
Aug 20, 2008 - Price Changed to $310,000

In just 14 days, the price went from $384k to $310k, with one price increase thrown in for delusional kicks. You'll also notice the current asking price is one dollar less than the August 20th asking--way to go, pal!

And yet, still no interest for months. Ouch.



However, on the surface $309k seems like a realistic price--especially considering the great neighborhood, proximity to the lagoon, two parking spots and in-unit laundry. So why no bites?

Because potential buyers quickly discovered it's still overpriced, even at $280 per square foot. Other than the days on market stacking up, what makes me say that? One word, three letters:

H

O

A

In case you missed it, between two separate HOA fines you're writing a $685 check every month. Fully 1/4 of your monthly payment is purely HOA fees!

Paying that at West Ocean Two is one thing, but this place? With no pool, gym or douchey conceirge service? Puh-leaze.

As you can see, $309,999 doesn't seem like such a smoking deal anymore.

Here are the facts as I see them:

1) This dolt grossly overpaid for his condo in 2006.
2) During his brief tenure as loanowner, homeboy paid more than $19,000 in HOA fees.
3) Assuming a 10% down payment, this sucker parted with nearly $100,000 in mortgage payments (around $70,000 after tax write offs)
4) Assuming this seller was the one who upgraded the kitchen, there's another $15,000.

And so, if this desperate seller manages to find a knife-catcher comfortable with a $2,600 monthly payment on an apartment (who is dumb enough not to notice that this place rents for significantly less), this owner will have dumped nearly $180,000 into their flat AND WILL WALK AWAY WITH ABSOLUTELY NOTHING.



If the lender agrees to a short sale at $309,999 (and again assuming the current owner put down 10% and not some huge sum), their loss will be in excess of $130,000.

Sellers can continue to deny the bubble has burst and can stick to their idiotic pricing guns until they rack up 1000 days on the market, but the fact is the party's over and all that's left for those who overpaid between 2005 and 2007 is very real, very painful financial destruction.

For distressed sellers, 2009 will be where the rubber hits the road. Continuing to childishly deny reality and cling to ignorant ideas about what properties are worth will be futile in the face of recasting Option ARMs, continued job losses, contstricting lending standards, and banks trying to unload their growing foreclosure inventory.

WOW!!! Grab a bucket of popcorn because this is going to be a really exciting year! WOW!

Going Down(town) in Flames: UPDATE

Reader Rebecca kindly provided an update on this incredibly overpriced loft:

I just read this entry, in November, and was curious to see what happened: http://www.redfin.com/CA/Long-Beach/1100-E-3rd-St-90802/unit-201/home/8181476.

Maybe you've updated elsewhere, but if not, you'll be happy to know that your prediction came true-it's now bank-owned. Unfortunately, they didn't get the memo about pricing...

In July I said:

I'll say it again: The ONLY way to determine the value of any investment is to run calculations based on fundamentals. That's it.

And what do those rent vs. buy fundamentals tell us?

Based on nearby rents of similarly sized lofts, this gloomy gus would not even begin to make financial sense until the price reached $299,000.

Which do you think will happen first? That 60%-plus total price reduction or this flipper walking away?

Well, I guess we got our answer. After almost a year rotting on the market at unrealistic prices the bank has, as I predicted, taken it back. Instead of learning a lesson from how sticking to wishing prices only causes pain, the lender insists on "staying the course" with this idiotic pricing strategy.

Let's crunch some numbers!

Address: 1100 E. 3rd Street #201, 90802
Asking Price: $464,900
Year Refurbished: 2005
Size: 1 beds, 2 baths, 1,530 sq. ft. (Weird. It was originally listed as 1818 squares and 3 baths)
$/Sq. Ft.: $304
HOA Fine: $350/month
Purchase price: $599,300
Purchase date: 10/2008 (back to bank)
MLS#: R809148
On Redfin: 35 days
Down Payment: $92,980 @ 20%
Monthly Payment: $3,200
Income Requirement: $132,828 @ 3.5X

Asking $464,900 in this economic environment takes brass balls. If the previous owner couldn't garner any buying interest at $499,000--IN JULY!--then what exactly makes the bank believe a mere 7% reduction will earn a sale? Especially now that the credit crisis is in full swing and it's incredibly difficult to get loans. WTF? Greed prevails once again.

And if you thought $464,900 for this place was ridiculous, the updated listing description tries to slip this little tidbit in:

Needs some repairs performed however perfect for customizing to your personal taste.

HAHAHAHAHA! I mean, what? "$464,900" and "repairs" should never be in the same sentence.

By all appearances, this is a Trash-Out foreclosure. For those who aren't aware of this growing trend, some bitter owners facing imminent foreclosure are gutting their properties, ostensibly to "get back at the bank." This sometimes results in appliances being removed, fixtures being stripped, and in some cases, severe damage to the floors and walls.

How else do you explain this:

BEFORE:

AFTER:



It takes a special kind of asshole to strip the outlet covers:



Yeah, you really showed them, buddy! The weird thing is the lender has had more than a month to replace the 39-cent covers and hasn't bothered to do so. Are they just waiting the clock out on a government bailout? WHAT ARE THEY THINKING?!

And notice there are no pictures of the kitchen. That's not a good sign.

It's worth noting the bank took this property back for $599,300. That means two things:

1) The previous owner put down $200,000...and lost it all (along with his credit).
2) The lender, if the property sells for today's asking price, will lose $161,994.

Anyone think this place is going to sell at current asking? Especially given the repairs needed (there bathroom sink is not functional either), $350 HOA fee, distance from the ocean, and the guaranteed depreciation in coming years...I stand by my prediction that this stripped-down dump will sell for no more than $299,000 when we hit bottom.

[UPDATE: Eagle-eyed reader FreedomCM noted that it's not just the outlet covers, the actual electrical sockets and light switches have been removed! Incredible! The trash-out repairs have now gone from PITA (Pain In The Ass) to major contracting work and unless the bank decides to make these repairs, I'm having serious doubts regarding my "under 299k" prediction. Plus, my -299k prediction was based on an 1818 square foot, 3-bathroom place. Given that the square footage and number of bathrooms has shrunk since the original listing, while $299,000 would certainly garner buying interest, it may not get the job done.]

Wave Ya Hands in the Air, if You's a True Playa: UPDATE II

This is just getting depressing.

Remember those two wild and craaaazy guys at 5585 E. PCH?

Well, after failing miserably in their attempts to scare buyers into overpaying for their condo, using realtor garbage like "won't last" and "HURRY!", now they're threatening to take their ball and go home.

"LAST CHANCE BEFORE OWNERS CONVERT IT TO A RENTAL!!"

My response is, who gives a shit? Go ahead, convert it to a rental and bleed cash every month for the next 20 years, what the fuck do we care?

In fact, at 117 days on the market, I think they're morons for not doing that from the start. Why waste everyone's time at $350 per square foot if you were just going to convert it into a negative-cashflowing debt trap anyway?

They were holding out hope for a Greater Fool to pay their wishing price, I suppose.



Address: 5585 E Pacific Coast Hwy #154, 90804
New Asking Price: $299,900
Year Built: 1970
Size: 2 beds, 2 bath, 913 sq. ft.
$/Sq. Ft.: $328
HOA Fee: $274 (newly increased from 229?)
Purchase price: NA
Purchase date: NA
MLS#: P646198
On Redfin: 117 days
Down Payment: $59,980
Monthly Payment: $2,000
Income Requirement: $85,000
Description: LAST CHANCE BEFORE OWNERS CONVERT IT TO A RENTAL!! BEST PRICE PER SQ.FT. IN COMPLEX AND EASTSIDE AREA! 1st flr CRNR location....Quietest in complex!-Only 1 shared wall. Popular 'Park Ocean' building w/ Commnty pool,Spa,Sauna,Tennis,Bsktball,New BBQ grills,Workout Rm w/New Equipment,AND unit is wired for FIOS & Cable all included in the Low Assoc.Dues! Best flr plan w/ Two Mstr Bdrms and 2 Prvt. Baths-Both Newly Remodeled w/Cstm Tiling,New Vanities,Faucets,Fixtures,Sinks,AND Designer Shwr Dr and Granite Counters..Mdrn,Open Lving Area w/ Pergo-Type Flrng,Air Cond,New Doors and Custom Blinds. Contemp. Kitch. W/extra storage Maple Cabnts w/under lighting,'2' 7 ft Pantries,Recessed Lghtng w/Dmmr Swtchs(& in Bthrms),and Stnlss Steel Appliances. Desireable 'Park Estates' neighborhood-Conveniently located to Golf Course,Cal-State Long Beach,Stores,Shops,Frwys,& Beaches!! One of the Lowest Assoc. Dues w/ the Most Amenities in the Area. HURRY-JUST REDUCED...WANT OFFER!

My spellchecker just shot itself in the face.

Ths hideus pice of sht, evn @ JUST REDUCED 299k is n abslut jke. To affrd it wth enuf lft ovr fr lvng Expnss, a cpl wuld hv 2 mk 85k pr yr.

$85,000, you say? But that's only three-and-a-half times annual income. The reason for that is as of today, I am calculating the income requirement at 3.5X instead of my usual 4X.

The reason for this change is simple: The last year has taught us many things about financial bubbles, real estate, blinding greed, calculating property values, the crushing power of debt, lending standards and the economy in general (I mean, Credit Default Swap is a household term now). And one of the most obvious lessons (re)learned by banks is if people don't make enough income to reasonably afford their mortgage payment, those loans don't get paid back.

I formerly used 4X annual household income to determine home affordability because in Southern California, our standards for what constitutes "affordability" are much different than other parts of the country. We have high-demand areas, larger incomes, and more jobs here, therefore we are more accustomed to spending a larger portion of our income on housing.

For example, how many of you have family or friends visit SoCal and lose their minds about housing prices? "Oh my, $400,000 for that? In [INSERT PODUNK TOWN] that would go for about $95,000." And many of you probably shrug and reply, "Meh, crazy I know. But that's just how it is out here."

However, California also has one of the highest tax rates in the country and the day-to-day cost of living in SoCal is considerably more expensive than other states and areas of California (ever go to the Midwest and marvel at how much cheaper their gas is?). That means less income available for housing, which means families stretched too thin trying to pay mortgages they could never afford to begin with are destined to go bust and add to the growing compendium of distressed properties.

AND SO, 3.5X income is a more realistic calculation to determine how much house someone can truly afford without serious risk of default, insolvency, or a poverty-level lifestyle, and that will be the new standard on this site. If the economy worsens, don't be surprised to see myself and other bloggers using the formerly tried-and-true 3X income.



As for these idiots at 5585 E. PCH, since the July 10 debut on the market, Ace and Gary here only managed to reduce the price by 10%--a clear indication they were never serious about selling in the first place.

But they were right about one thing: "Won't last!" Of course, they weren't referring to the apartment. No, they were referring to their nerves. Once they realized the only way to get an offer on their swinger's paradise was to take a serious loss, they suddenly didn't have the guts to stick around.

But hey, at least now some lucky renter gets to enjoy this wonderful property. A win-win (well, except for the whole owners-bleeding-cash-from-the-rectum-every-month thing. Other than that, total victory for all).

Long Beach: Circa 1937

Cool, eh? A high resolution photo can be found here.

Patience is a Virtue but This is Ridiculous

Let's cut right to the chase here:

Days on Market: 442 days.

If 90 DOM is the scarlet number, then what would you call 442? I can think of a few things: Pathetic, mind-boggling, evidence of brain damage, worthy of ridicule, a Schadenfreude swimming pool..I could go on.



Here are the vital stats:

Address: 680 Grand Ave #103, 90814
Asking Price: $299,999
Size: 2 beds, 2 baths, 855 sq. ft. (built in 1986)
$/Sq. Ft.: $351
Purchase price: $360,000
Purchase date: 12/2005
Down Payment: $59,999
Monthly Payment: $2,000
Income Requirement: $75,000
MLS#: P595441
On Redfin: 442 days
Description: Beautiful 2 bedroom 2 fully upgraded 1st floor condo with pergo floor and gas fireplace in living room. Ceramic tile in kitchen, baths and balcony. Master bedroom with private bathroom and large closet. The Grand Villa is a secured property with spa and workout freeways and Downtown Long Beach. The VA Hospital and Cal State Long Beach as well.

Wait, this place is "fully upgraded"? Really? Are you sure we're talking about the same property? Because all I see is awful paint, cheap-looking laminate floors (really, dude? Laminate?), gross carpet, original bathrooms, bargain bin kitchen counters, cruddy kitchen cabinets, and outdated appliances. On what planet is that considered "fully upgraded"? You mention "ceramic tile" but fail to show a single, solitary picture of this "fully upgraded" feature.



And then we have the unbelievably cramped 855 square feet (it appears only four of which are allocated to the kitchen), community laundry, the location right on top of 7th Street, a first-floor location and one garage space (for a 2-bedroom?).

Oofa, this place really doesn't have a whole lot going for it. The fireplace is a nice touch but it looks like a do-it-yourself project. You should have had a little more ambition if it was supposed to be the living room's centerpiece.



With these significant drawbacks, it's no wonder this condo has been rotting for 442 days.

And what has this flopped flipper been doing during those 442 days? Not much, apparently. Check out the pricing history:

Aug 18, 2007 - $399,000
Feb 29, 2008 - $398,888
Apr 04, 2008 - $397,777
Apr 27, 2008 - $379,999
Oct 02, 2008 - $299,999

That's right, during the first eight months with no buying interest, the WTF price was only reduced a pathetic $1,333. HAHAHAHA! Helluva pricing strategy you've got there, pal.



More perspective: During the first 411 days with zero offers, the price was lowered a whopping 5%.

IN 411 DAYS!!

I know some people get offended at the word "retarded," but I'm sorry, there's no more accurate word to describe this flipper's behavior.

And if the seller isn't actually retarded, they're most certainly greedy.

However, you have to give them credit for at least capitulating to the fact that their flip attempt has failed miserably. They know they're going to lose badly on this, and just 30 days ago slashed the price by $80,000. A little late to start pricing reasonably, but it's a start.



I don't know what made them finally wake up but it's worth noting a sale at today's asking price of $299,999 (what are you, a used car lot? Just call it $300,000, toolbag) would result in a loss of $78,000.

78 Large in just 22 short months. Unreal.

Not to mention the carrying costs for 22 months ($50,000+) and upgrade costs ($3.57). This is a catastrophic loss and it's only going to get worse for this flipper.

Keep in mind, this 2-bedroom shoebox sold for $170,000 in 2002. Considering we're well into 2004 pricing (and rapidly approaching 2003) a buyer is taking an awful big gamble that we've hit a bottom and won't keep falling to 2002 prices and beyond.

And given the serious drawbacks and lack of features in this property, I'm fairly certain places like this will be selling in the $230,000 range when all is said and done.

You have to wonder how things would have turned out if the asking price was reasonable from the start, and realistic price reductions followed. I'm sure this flipper ponders that every. waking. moment.

And just to cleanse the palate of all this greed and stupidity, let's take a gander at the only 442 worth our respect: