Friday, October 31, 2008

Quick Updates

Happy Halloween, everyone!

A reader turned me on to the SoCalMLS site (I usually use Redfin), which is a great tool for finding closed sales (Thanks KatyinLBC!). So here are a few quick updates on some RE in the LBC featured properties:

655 Ultimo, 90814

Purchase price (10/2007): $575,000
Original Asking Price (3/2008): $1,199,000
Final Sales Price (10/2008): $975,000 (20% discount)
Profit After Commissions: +$340,000 (significant rennovation costs not factored in)

Notes: For all the trash I talked, this flipper was eventually able to find a greater fool. Congratulations! The flipper got a good deal when he purchased it, used top of the line materials to upgrade, and wasn't afraid to discount when the going got tough. Have to give credit where credit is due. And may Buddha have mercy on the knife-catcher's soul. With $5,900 a month in carrying costs, he's going to need it.

514 Temple, 90814

Purchase price (9/2005): $520,000
Original Asking Price (3/2008): $499,000
Final Sales Price (10/2008): $338,000 (~35% discount)
Loss After Commissions: -$202,000

Notes: If you recall, I was mildly interested in this house as an investment property. The new bag-holder paid $338,000 for this incomplete fixer-upper, making the carrying costs around $2,000 a month. Even after spending tens of thousands of dollars completing the flip and converting it back to a proper 2-bedroom, there is no way this place could rent for $2,000. That's called negative cashflow, Sparky, and you just caught a falling knife.

282 Redondo #302, 90803

Purchase price (1/2006): $445,000
Original Asking Price (1/2008): $420,000
Final Sales Price (5/2008): $373,000 (~18% discount)
Loss After Commissions: -$94,000

Notes: Aside from the stunning $94,000 loss, what stands out to me is that the monthly carrying costs are around $2,500. Dude, are you nuts?! You'd be lucky to rent it for $1,600! What were you thinking?

The good news is that houses and condos are still selling despite the terrible economy. More good news for us taxpayers is anybody buying right now has to meet stricter income requirements, is not using Option ARM, Interest Only garbage loans, and is (finally) putting significant skin in the game in the form of higher down payments. That means despite severely overpaying for something that will be much cheaper in the future, these newly-minted bag-holders are much more likely to be able to actually afford their payments. Nice!

However, if the people like 282 Redondo wake up tomorrow and realize they could rent the place next door for $900 less than they're paying now, or wake up a year from now and realize they could BUY the unit next door for the same $1,600, we might see walkaways regardless of the ability to pay.

Wednesday, October 29, 2008

Is $700 in HOA Fees "Cheap"? Let's Discuss

An anonymous reader left this comment on the West Ocean Two Auction Results post:

I guess you must have never owned a nice home. I easily payed [SIC] between $1000 to $1500 per month to maintain my home which included lawn service, pool service, utilities (which should be very minimal in a condo) and ongoing maintenance. Therefore $700 per month seems pretty cheap to have all this taken care of for you.

Okay, I'll bite.

First, why would start off your comment in such a condescending, dismissive tone? I think your perspective is an interesting one, and one that could have started a worthwhile conversation about the merits and disadvantages of high HOA fees. But yikes.

You are correct in your guess that I "have never owned a nice home." And as you've established, you clearly have. And your home was SO nice that you "payed" $1,500 a month to maintain it. We are all very impressed.

And although I've never owned a "nice" home, I've lived in plenty of them (the one I grew up in and rental situations) and I understand that there are significant maintenance costs involved (especially with a pool). This is why I always tell my readers to factor in those costs when calculating a housing budget. My basic calculations do not factor in broken water heaters.

I welcome your unique perspective, especially because there are certainly some advantages to HOAs (insurance included, some utilities, some basic repairs covered) but I strongly disagree with your claim that $700 per month in HOA fees is "cheap." I think that is utter nonsense and you have failed to convince me otherwise. When compared to a large 2,500 square foot house with a rock pool and 1/4 an acre of lawn, sure, I guess $700 a month for a condo seems like a smoking hot deal. But those aren't legitimate comparisons.

This is because lawn service, pool service, utilities and ongoing maintenance costs in condos are split by hundreds of tenants, making a paltry 40% - 50% discount from the maintenance costs of a large, private, detached home with a pool and yards a total, unabashed rip off. Yes, there are more individual units to maintain in a condo complex, but with new construction and a collective HOA system, costs should be much, much lower to make any kind of rational sense for a homeowner.

Second, without knowing more about your "nice" home, I'll have to assume that with an $18,000 annual maintenance bill, it was quite large.

Condos at the West Ocean Two, as you know, are not.

They are about a third of the size of a "nice" home (with shared walls and no yard to boot). Given that fact alone, condos SHOULD have lower operating and maintenance costs! Much lower. But $700 for a condo compared to $1,000 for a home ain't what I consider "much lower."

There is no doubt pools are expensive for homeowners to heat and maintain. For argument's sake, let's say you plunked down $600 per month maintaining your pool. Do condominium pools cost more to maintain than similarly sized home pools? No, they do not.

Plus, everybody in the building pays into the HOA, meaning that $600 a month for ONE POOL is split between hundreds of people. Your monthly share for the pool should be about $3. The HOA is probably charging you $150.

Third, each condo does not have an individual yard like a house does, so the primary landscaping costs for a building are minimal. Even if groundskeeping cost $2,000 per month for the entire building, again, that's split between several hundred people. Your share is about $10 a month. The HOA is probably charging you $350.

I agree with you that condo utilities are "very minimal," but your argument is that utilities are an additional cost in a home, but are "taken care of" in a condo. If all utilities were, in fact, included in the HOA, I might buy your premise. But they are not.

Some of the nicer places do include WiFi Internet now. But WiFi costs $30 a month--how much is your HOA charging? $80? My point is, I'm not quite sure how paying utilities--regardless of how minimal--ON TOP of exorbitant HOA fees is a good deal.

Here's a little perspective: Assuming 200 people live in a building, and the average HOA payment is $800 (the range at West Ocean Two is $700-$900), that's $160,000 per month, or $1,920,000 per year.

You're telling me with a straight face that it costs 1.92 million per year to heat a pool, mow the lawn, and wax the lobby floors? Really? Nobody's getting fleeced here?

I mean, if $800 per tenant was the bare minimum West Ocean Two needed to keep the place running, then how do buildings with older construction (ostensibly requiring more repairs) do it on a paltry $300 a month?

Because that's all it costs.

You see, maintenance costs should be significantly cheaper in a high density building than a home. I mean, that's part of the allure of condo living: avoiding the high costs and hassles associated with home maintenance. I get that, and I see why some believe HOA costs are worth it to live a low-maintenance, "lock-and-walk" lifestyle.

But slapping down $700-$900, considering you still have to pay utilities, share a pool with hundreds of people, and have no valet or maid service included, and still have to pay for any upgrades, is hardly avoiding the high costs and hassles associated with home maintenance.

Frankly, I think people pay the $700 to $900 a month at West Ocean Two to feel cool. Plain and simple. I mean isn't coolness what consumerism is all about?

People buy Porsches and brag to their friends that an oil change set them back $325. Overpaying for something so rudimentary has become a sort of status symbol, a way to feel cool when coolness for the little people is just a credit card swipe away. These chronic overpayers feel cool to have such expensive (albeit foolish) tastes, and feel even cooler when they can criticize others for not having had the pleasure of such fine things.

You know, kind of like someone posting a comment about their house being so nice it set them back $1,500 a month just to keep the lights on.

Tuesday, October 28, 2008


Today's property just got hit with The Scarlet Number: 90.

As in, 90+ days on the market.

And a closer look reveals why it has languished so long, and why it is doomed to remain on the MLS for much, much longer.

Address: 401 Newport Ave, 90814
Asking Price: $508,000
Size: 2 beds, 1 bath, 1,556 sq. ft. (built in 1905)
$/Sq. Ft.: $326
Purchase price: $830,000
Purchase date: 4/2006
MLS#: P648443
On Redfin: 96 days
Down Payment: $101,600
Monthly Payment: $3,100
Income Requirement: $127,000
Description: Location! Location! Location! Desirable area of Belmon Heights! residential with commercial used. formaly the 'SANCTUARY'

The listing description tells you all you need to know about this property's chances of selling. I mean, that has to be one of the most pathetic, piss-poor descriptions I've ever featured.

Let's start with the Triple L claim. Yep, it's in a decent neighborhood. One of the Three Ls down! But it's also sitting right on top of a very busy 4th Street. And there's a stop sign smack dab in front of the property. Traffic noise, much?

Furthermore, whenever I've walked, ridden or driven by this place, I'm astounded at the lack of privacy. There is vast exposure to the street at practically every angle.

Technically the location, as it relates to neighborhood, is good, but otherwise this is an unbelievably unappealing location. For instance, at night the lot 40 feet behind the house is used as the main parking area for the Silver Fox bar/club (it's a Smog Check place by day). Add to that the incredibly low picket fence, and you've got yourself zero privacy.

Next, the realtor can't even get the name of this "Desirable" neighborhood right. "Belmon Heights"? Is that the Jamaican area of Long Beach or something?

At least the "residential with commercial used" line tells us something useful. But then we're hit with, "formaly the 'SANCTUARY'."

Do you mean, "Formerly"?

And exactly who gives a damn what this place was "formaly" called? What possible relevance would that have to anyone? Whatever it was called, it's defunct. Plus, why waste space in the listing description when the 'SANCTUARY' signs are still attached to the house! It's the first freaking picture in the listing!!

It drives me up freshly painted walls when realtors waste space pointing out the obvious. It's like mentioning, "Has roof."

Anyhow, I can clearly see that it used to be SANCTUARY, I just fail to see how that is more important information than, say, what flooring materials were used, what condition the house is in, and what, if any, upgrades are present.

Furthermore, how about letting us know what type of business SANCTUARY was. Clearly nobody is going to bother converting this place back to a residence--too much work. So don't you think it's a good idea to let your business-owning potential buyers know how it's set up? Perhaps these future entrepreneurs are interested in a floorplan more conducive to their particular mode of business? I mean, the set up for a restaurant or a book store is a lot different than a hair salon.

By the way, SANCTUARY used to be a hair salon. See? Helpful, right?

But I guess you "don't want to limit your potential buyers." Fair enough, but by listing this poorly placed plum pustule for more than half a million clams, you've already done a bang up job of alienating most potential buyers. Not to mention the exterior paint color. I mean, is this Grimace's house?

This place looks like a bruise with windows.

Notably, if this Purple Equity Eater sold today, it would represent a loss of $350,000 in just 30 months. WOW! That is a catastrophic loss. The only way that's not going to hurt is if you were charging $4,300 for a cut and color.

And after 96 days, it's obvious that this asking price is still way off the mark.

I'm convinced sellers in this neighborhood are smoking some really good purple haze.

Speaking of weed, is there a better example of an invention created in a cloud of marijuana smoke than Goober?

"Man, it's such a hassle opening two jars to make a peanut butter and jelly sandwich. Plus, like, I gotta use two knives so I don't get jam in my peanut butter and vice varsity, man."

"Yeah, bro, totally. They should just, like, combine the two in one jar."

"Totally dude! We should like, totally, come out with that. We're gonna be rich!"



"Wait. What were we just talking about?"

"Uh, I dunno dude. Wanna go to Del Taco or what?"

Monday, October 27, 2008


From the excellent Bubble Markets Inventory Tracking blog:

Anybody out there think the bottom is anywhere in sight?




Friday, October 24, 2008

Pricing Problems

So, let’s say you want to sell your property. You don’t read newspapers, don’t have any basic understanding of economics, but believe you are a smart, savvy real estate investor. How do you figure out how much your place is worth?

I guess you could ask your realtor, but she’s living in her leased Lexus and eating from the Pot Holder dumpster these days. Plus, you are starting to suspect her commission-based opinion about “value” might be biased and misleading. So, that’s out.

Well, another way to figure out what your place is worth is to calculate what you put into it and add a nice Nikki Blonski profit. After all, real estate always goes up!

Just four summers ago you slapped down $385,000 for your condo, plus you dumped another 30k upgrading the place with every accoutrement HGTV told you to “invest” in: Granite countertops, crown molding, stainless steel--the works, player! Plus, Flip This House said $1,500 in granite = $3,000 in value. In addition to what you put into it, your mortgage lender said a special place like yours is guaranteed to appreciate 10% per year since you bought it.

So, factoring in all of that, plus a fat profit as a reward for your real estate expertise, your place is worth…um…how about…$495,000? Yeah, that has a nice ring to it! It has no basis in fundamentals (“What’s are those?”) or reality (“Ree-al-wha?”), but it sounds good. Your homeless realtor concurs.

However, last weekend somebody told you about an article in the New York Times (but certainly not the Long Beach Press Telegram—they hardly cover real estate at all) claiming home prices will continue to drop through 2009. You start to worry that if enough people read these left-leaning marxist rags, some of the appreciation gained during the last few years will be wiped out.

So, given all that negative nelly talk and the bias of the mainstream media, maybe you should just ask for enough to break even on what you put into it (and cover 6% in Vagrant Realtor commissions, of course). I mean, it’s not as if you’re GREEDY or anything. I guess a huge profit isn’t that important. Obama would just tax the hell out of it anyway, right?

Plus, no matter how bad these “market corrections” (whatever those are) get, it’s not like a sophisticated real estate mogul like yourself would every actually LOSE money. Ho ho. That’s a laugh riot! So, your place is now worth…uhh…hows about...$435,000? How does that sound?

Drat! Your co-worker at Enterprise Rent-a-Car mentioned some liberal claptrap about the economy quickly going down the toilet and people being unable to get loans--especially the hocus-pocus interest-only loans that allowed people like you to buy beyond your means in ’04. Well, this is the first you’ve heard of that garbage. However, just to play it safe, maybe it’s best to take a tiny loss just to be done with the whole thing, no?

Aw, heck, just price it at $379,000 and let the rich foreigners your recently-laid-off cousin told you about snatch it up. I mean, it’s not like you’d actually sell for such a low-ball amount, but you should price it that way to, you know, drum up interest and start a Hong Kong telecommunications executive vs. Russian oil baron bidding war.

Okay, time to list this baby on the MLS!

Address: 2055 E. Broadway, 90803
Asking Price: $379,000
Size: 2 beds, 2 baths, 1,158 sq. ft. (built in 1970)
$/Sq. Ft.: $327
HOA Fee: $235
Purchase price: $385,000
Purchase date: 7/2004
MLS#: S550543
On Redfin: 15 days

So far so good. But what about the listing description? You’ve got to make it POP and really show buyers how special this property is.

I got it!

Since you’re already appealing to low-ball vulture buyers and foreigners with your bargain pricing, why don’t you start the listing description with a grievous spelling error? You know, to let buyers know you’re half-retarded and aren’t some East Coast Liberal Elite.

Spactacular deal! Inside state of the art laundry and parking for 2 cars. This one can close FAST. 1135 sf. of living space 2 bedrooms and 2 baths and a redone kitchen with granite and stainless steel appliances. Walls of glass creating a light and bright living space with panoramic views. Top floor loaction.Steps to dining, beaches and across from the park. Start enjoying the life style.

Nailed it!

And I really like the use of the word “loaction.” What is that, some kind of Russian word meaning “luxury living”? Brilliant.

And your closing line of “Start enjoying the life style” is nothing short of brilliant! That was a clever idea to keep it vague. That way you can appeal to a wider range of buyers, looking to live whatever particular lifestyle they’re into. Gay? BDSM? California? Long Beach? A life of style? It’s all good!

I gotta say, for someone that just a few minutes ago had no clue how to price real estate, you are really on a roll here.

Actually, you know what? And I apologize for bringing this up now that you’ve gone through the trouble of creating a listing so lovingly-adorned with typos, but there is one other way to determine a property’s value.

I’ve never actually seen it done in Long Beach, but I heard it’s sometimes helpful to look at other nearby, similarly-sized and appointed houses to get an idea of realistic asking prices. Oh, here’s one that’s really close to your condo. In fact, it’s in the same building! Another savvy investor, no doubt!

And the best part is, he’s aski--what the?! $300,000?!!

Well, he must have serious mold problems or something if he’s asking only 300k. What is that jerk thinking? He clearly doesn’t know how to value real estate. I mean, hello? At that price, gang bangers and welfare queens are going to move in!

Let’s compare the monthly payments between your condo and his dump to figure out just what kind of riff raff he’s trying to attract to your building.

Your 1,158 square foot 2/2:
Down Payment: $75,800
Monthly Payment: $2,500
Income Requirement: $94,750

His 1,197 square foot 2/2 mold farm:
Down Payment: $60,000
Monthly Payment: $2,000
Income Requirement: $75,000

The nerve! Well, clearly this hideous property doesn’t count because he’s pricing with no regard to true market value. What a lunatic! He’s obviously just some old fart with 30 years of equity just GIVING IT AWAY so he can move to Leisure World, cut coupons, and soil his Depends for the rest of his miserable existence.

It totally doesn’t count because with all of his equity, he’ll still make a monstrous profit. It’s not fair for you to lose value just because he can afford to take a bargain bin price. I mean, when did he buy his place, in like 1985 or something?

Past sales:
Jun 14, 2005 - $445,000


So your neighbor is actually going to lose $165,000 if he sells at his current asking price? I’m no math expert, but assuming he sells at this bottom-of-the-barrel price, you will automatically have to absorb a $100,000+ loss if you want to compete.

Wait, that can’t be right. My calculator must be on the fritz. It’s one of those solar deals, you know.

I say just hang in there. Don’t listen to all those chicken littles. I mean, it’s not like the bailout is causing interest rates to increase.


Well, the good news is there are plenty of jobs so there are going to be a ton of buyers out there.


But nevermind all that crap! I mean, who reads newspapers anymore? Liberal elites, that's who! Don't worry, just hang tight and give the Wall Street Bailout time to work its magic. In fact, I'm so confident the bailout(s) will start another housing bubble that by this time next year you can sell for $499,000!

Plus, you've only been on the market for 15 days. I say give it another 150 before you even consider cutting the price. After all, you have to provide sophisticated buyers with enough time to sift through all the underpriced condos and discover your shining jewel. I mean, who wants to pay less for the same thing when everybody knows the only things worth buying are woefully overpriced.

Duh, it's the most obvious sign of quality.

Is the Cure Worse Than the Disease?

KatyinLBC made a comment that I want to explore. She shared her frustration with the idiots paying way more than properties are worth, thereby propping up LBC home prices. She also noted her concern about government bailouts perpetuating this nonsense for years.

As far as stupid people overpaying for houses go, there is nothing to be done about that. It's going to happen, and that's their misinformed, idiotic prerogative. And there are plenty of foolish people convincing themselves this is the bottom, and stupidly buying properties at prices that reinforce horseshit valuations and prolong the inevitable return to fundamentals us responsible buyers are waiting for.

HOWEVER, it's also important to acknowledge that not everyone buying a house right now--even if they are overpaying--is necessarily stupid. If an individual or family really wants to live in a detached home and avoid HOA fines, noisy neighbors, thin walls, street parking and community laundry that apartment living has to offer--and the rent vs. buy calculation is within a few hundred bucks a month--then I would say that's a smart move from a quality of life viewpoint. From a financial perspective, as long as those buyers can afford their house, it's also a good move in the long run.

Houses and condos are selling every day, and as bearish as I am about the ramifications of the housing bubble, I think we have to recognize there are some consumers making smart decisions.

Regarding Katy's fears of government intervention propping up prices: That is precisely what they are trying to do, and it makes me nervous as well.

I've been reading more and more about The Great Depression and what's most interesting to me is that many believe the stock market crash of 1929 caused the depression. Hell, I thought that too. But it turns out it was in fact government intervention and attempts to provide liquidity to insolvent banks and force them to lend (sound familiar?) that caused the Depression.

As Mish from Global Economic Analysis (some over-my-head economic discussions, but I think it's essential reading) said:

Here is the deal in even simpler terms. In order to prevent the "Great Depression II", the Fed and the Treasury have embarked on a series of measures similar in nature to those that caused the great depression.

The root cause of the great depression was the unsound lending patterns leading up to it. Those same unsound lending practices, now carried to the very limits of legality via Bernanke's alphabet soup of facilities, cannot possibly be the cure.

The only reason housing prices haven't completely collapsed is because the federal government is essentially the only game in town for low down payment loans. And strapped consumers (especially those who had money in the stock market) don't have 20% down payments. So the feds are subsidizing mortgages, which allows people to get into homes they would not be qualified to buy under normal lending standards. This, in turn, creates false competition and props up house prices--much to the frustration of potential buyers like Katy, myself, and many of you out there.

I am furious at the government's use of our tax money to avoid the inevitable, but I am more concerned that their efforts are actually going to make our current economic troubles much, much worse.

The only way we will survive this is to let insolvent banks to fail, embrace a return to common sense lending practices, and allow prices to return to affordability. But that's going to be painful. And it's going to get ugly for a while. But, tantamount to ripping a band aid off quickly to get it over with, versus slowly, tortuously pulling it off and prolonging the pain, both result in misery, but the former allows you to start feeling better much sooner.

I'll have a normal post with humor and foul language very soon...laughter is the best cure for what ails us.

Wednesday, October 22, 2008

Back in Black

Sorry for the lack of posts--I just returned from an incredible three days in Mexico's wine country.

My (ir)regular posts will resume this week.

Hope everyone is doing well and weathering the economic storm as bravely as possible.

Anyone out there see any silver linings?

Saturday, October 18, 2008

A Tale of Two Cities: UPDATE IV

I hope you guys don't get bored with these update posts, but I love following certain properties and doing a Where Are They Now months after I've exposed their greed and delusion.

You may remember this booger barn, first featured in February:

Click here for the entire series of posts.

Well, they're still going strong, consistently dropping the price and praying to the high heavens for a sale. You really do have to respect the tenacity here.

However, their story is plagued by a single, harrowing theme of steadily chasing the market down, and consistently failing to get ahead of it.

The current asking price of $179,000 represents a discount of $131,000 since the property hit the MLS on February 5. That's a 42% reduction in asking price.

Not saying much considering the original asking price of $310,000 was an absolute joke, but still.

In February of this year I said:

Long Beach is living in fantasyland. There is no other explanation for the Wishing Price behind this 95-year-old, borderline-condemnable rat hole that sold just seven years ago for $130,000.

The point of this post is that Long Beach has not received the memo about the status of Southern California real estate. These informational and psychological barriers will come down, whether delusional Long Beach sellers like it or not. But my hope is that Long Beach stops fighting reality sooner than later, lest they further humiliate themselves with their offensive and frankly hilarious pricing strategies.

Well, it appears as if the informational and psychological barrier is crumbling (for these sellers at least). They are finally capitulating and getting aggressive so they can unload this albatross. I guess the important question is, Will this latest $36,000 reduction attract a buyer?

In March, regarding the large price reductions I said:

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.

So what the hell is this place worth? Remember, it sold for $130,000 in 2000.

In March I said:

At $160,000 it might make sense as an investment property. It would have to be torn down (or maybe the Historical Society would come down on you for trying to level this 95 year-old dumpster) and rebuilt, so you have to factor in those costs as well.

They're getting closer to $160,000, but I wonder if it's too late. Has the market for awful, poorly located properties like this evaporated with the credit crunch and lost jobs? Maybe 160k won't even get the job done.

Here's some perspective for you: If this house does sell for $160,000, they will walk away with perhaps $20,000. At least it's not a loss, right?

Or is it? They bought in 2000 and during the ensuing years witnessed the largest housing bubble in the history of the world, with properties appreciating 20% per year. They could have cashed in. And the reason they missed out on the opportunity to walk away with double their initial investment is because of greed. Pure and simple.

They thought it would last forever.

And when they realized (much too late) that the phantom appreciation was not going to last for perpetuity, they made a greed run and started with a ridiculous asking price. And they've been chasing the market ever since--256 days and counting.

If they had started with a lower asking price, or listed the home six months earlier--or both--they would have hit a once-in-a-lifetime lottery and had a chance at bettering their living situation and lives in general. But they blew it. And now this mound of mold just sits and sits.

Wednesday, October 15, 2008

A Fiesta into a Ferrari: UPDATE

The last time I profiled this house, I lambasted the sellers for their greed and ignorance of economic reality.

Well, since then the listing has been taken down and re-listed with a brand new, attention-grabbing asking price. A new leaf! A new attitude! A new opportunity to show (the few remaining) Long Beach buyers you're serious about selling!

Um, well, not exactly. There has been a significant $74,800 price reduction, but keep in mind the original asking price of $899,800 was certifiably WTF.

Interestingly, at the time I said:

Expect at least a 10% price cut within the next four weeks.

My well-documented prediction powers were a scant .05% off. Maybe next time.

However, it's worth noting I predicted that reduction needed to happen months ago to garner any buyer interest. These financial geniuses, unfortunately, waited until last week to step up to the plate! Too late, bucko.

The housing market has changed dramatically for the worse during the last few arduous months, and prices have long since passed these sellers by--doing 95 mph with the top down and middle finger straight up.

The new asking price of $825,000, while it represents a modicum of reality acceptance, is still indicative of a gravely brain-damaged seller. Just for the hell of it, let's take a closer look at the new listing and crunch some numbers.

Address: 366 Orizaba Ave, 90814
New Asking Price: $825,000
Year Built: 1918
Size: 2 beds, 2 baths, 1560 sq. ft.
New $/Sq. Ft.: $529
Purchase price: $423,000
Purchase date: 7/2002
New MLS#: P659618
On Redfin: 7 days
Description: Beautifully restored 1918 Craftsman Bungalow in the historic Bluff Heights neighborhood of Long Beach. Living and dining room combination with a working fireplace,skylight, and original hardwoods. Guest bath completely redone with marble and slate, a pedestal sink,custom lighting and glass shower divider. Guest bedroom is spacious. Master suite includes high end custom cabinetry,ceramic tile floors, indonesian rock walk-in shower and separate tub, and designer glass tile wall with vessel sink. Dream eat-in kitchen/great room with slate flooring, newer cabinets,granite counters and large center island and pantry. Sliders from the kitchen open up to a peaceful backyard deck overlooking the yard and koi pond. The house has been painted a soothing palate of designer colors, has custom window coverings, and has been landscaped front and back. New roof installed 3 years ago. Nothing left to do except move in and enjoy!!

New Down Payment: $206,250 (In June I was still calculating using a 10% down payment requirement. We all know those days are long gone and 20% is the new standard)
New Monthly Payment: $5,000 (Assuming a 6.5% interest rate. A jumbo loan would almost certainly need to be used, which carry much higher rates. But for the sake of simplicity, we'll use the same rate I applied in June)
New Income Requirement: $206,250 (Down from $225k)

How they came up with this pricing strategy is anybody's guess. I mean, just look at the nearby properties for sale. Hell, the highest priced 2-bedroom is only asking $599,000 (and that idiot has been begging for 245 days).

But all we really need to confirm our suspicions that this seller is in need of psychological evaluation is the recently closed sales:

$451,000 351 Coronado Ave Sold on Jun 04, 2008 - 3 bd / 1 ba 1,493 Sq. Ft.
$480,000 3225 E 4th St Sold on Jul 31, 2008 - 0.18 miles 4 bd / 2 ba 1,384 Sq. Ft.
$504,000 291 Redondo Ave Sold on Sep 15, 2008 - 0.28 miles 3 bd / 2 ba 1,856 Sq. Ft.
$232,500 380 Wisconsin Ave Sold on Apr 28, 2008 - 0.28 miles 2 bd / 1 ba 1,739 Sq. Ft.
$610,000 618 Ohio Ave Sold on Sep 23, 2008 - 0.31 miles 2 bd / 1 ba 1,372 Sq. Ft.

Dude, there isn't enough granite, stainless steel, or bullshit hand-polished Nairobian soap dish tiles to justify the kind of hole-headed greed and delusion informing your $825,000 asking price.

At the time I also said:

It’s also worth noting that the median income in this zip code is $49,073 annually. The income required to afford this house is $225,000 per year. Sure, this can't be called a "starter home," but it is most assuredly still a median home (the upper end of it). How can a tiny 2 bedroom, 2 bath, 1,500 square foot house (not on the sand) qualify as anything else?

Oh, it’s got an “indonesian rock” shower, you say? Big effing deal. You can put a spoiler and a set of 22" spinners on your '83 Ford Fiesta, but that doesn't mean it's suddenly going to be in the Ferrari section of the AutoTrader.

The foolish, misguided seller's decision to buy the most expensive materials possible has absolutely no effect on the house’s resale “value” in a declining market.

It's amazing he can sit there with a straight face and demand such a princely sum for what is ultimately, as I said back in June, a "heavily lipsticked pig."

"Rare," "imported" or "designer" upgrade materials are like those "In Loving Memory of ____" stickers people put on the back window of their car.

Nice enough, I guess, but utterly meaningless to anyone but you.

Most people don't want to live in someone else's idea of "trendy" or "modern." In fact, one of the oft-touted home ownership advantages, straight out of the National Association of Realtors handbook, is "The ability to remodel or customize your home."


This sucker watched too many episodes of Flip That Property Ladder by Design and absolutely refuses to give up the dream. If you combine the old and new listings, this house has been on the market since (at least) June 17. That's around 120 days--the kiss of death for most listings, especially entering into the historically slow winter selling months.

Sir, I don't claim to be an economic expert, but I, unlike you, have an uncanny ability to see the writing on the wall. And my self-education and utter immersion in everything Common Sense leads me to conclude that if you don't lop off 20% right now, tonight, you will get absolutely crushed as interest rates rise.

Instead of walking away with your hoped-for, fantasy land $400,000 in profits, by continuing with this avarice-infused pricing strategy you'll be lucky to walk away, beaten, bloodied, and bruised, with what you paid in 2004--meaning you will lose every dime you spent fixing it up.

It's your call. Capitulate or continue on the road to destruction. I didn't create the law of gravity, I just respect the hell out of it.

Tuesday, October 14, 2008

Pine-ing for a Sale

Sorry for the pun-tastic title, I couldn't resist. Today's property is caught in a dangerous spiral of bottom chasing (and I don't mean the kind of bottom chasing you did in college).

Yellow light--CAUTION!!

I actually feel sorry for this seller. And for no other reason than my imagination has run wild and pieced together a story about the current loanowner. You see, something about this property leads me to believe this seller is an older, single woman on the verge of retirement.

The 1992 purchase date, the incredibly small floorplan, the lack of granite and stainless steel bling, and especially the outdated decor and artwork all lead me to believe this is a sweet old lady trying to offload her primary asset so she can move somewhere less expensive and live out her sunset years.

Unfortunately, either due to terrible realtor advice or ignorance of the new real estate market, she has been unsuccessfully chasing the market down for a gut-wrenching 174 days. Her fragile heart probably can't take much more of this.

Address: 801 Pine Ave #312, 90813
Asking Price: $259,000
Size: 2 beds, 2 baths, 870 sq. ft. (built in 1990)
$/Sq. Ft.: $298
HOA Fee: $227
Purchase price: $119,000
Purchase date: 12/1992 (near the peak of the last housing bubble. Ouch)
MLS#: P633411
On Redfin: 174 days
Down Payment: $51,800
Monthly Payment: $1,700
Income Requirement: $64,750
Description: BEST BUY DOWNTOWN!!!This is NOT a short sale!!! DESIRABLE 'PINE PLAZA'!!! Easy FWY access, walk to public transportation, the beach, restaurants, clubs.....Third floor NW corner location with only one common wall, quiet and private! Fireplace! New, full size washer/dryer and refrige included. Beautiful pergo floors-recently painted-no deferred maintenance here! Two parking spaces-secure building! Assoc. rooftop deck and spa.

Anybody else notice that uber creepy painting above the couch?

Let's go in for a closer look:


The German Shepherd is weird enough, but the twins from The Shining?? Creeps!

Now here's a great photo I'm glad was included. I mean, how much effort would it have taken to set up the chairs properly? Not that it would make it a more relevant picture, but it's the principle of it! How lazy can you be?

As you can see by the price reduction action, this lady has been steadily chopping the price every two months, only to discover she's woefully behind the curve:

Apr 22, 2008 - $344,000
Jun 27, 2008 - $319,000
Aug 14, 2008 - $299,000
Oct 02, 2008 - $259,000

You have to give her credit for at least acknowledging reality unlike some people we know (We're looking at you, 109 Park) and consistently reducing the price during the last six months. But the problem is she started with $344,000 WTF asking price. This lady has the advantage of 16 years of equity, which is great, but she's in grave danger of losing most of it unless she starts getting aggressive.

Take a look around, ma'am. This 691 square foot 1-bed/1-bath right next door is asking a mere $120,000. Yes, you have a 2-bedroom, but how on earth can you justify asking an extra $139,000 for one more bedroom and an additional 179 square feet? Nobody is going to pay $776 per additional square foot for those few extra squares!

Or how about this modern loft a few blocks away asking $230,000?

Here is a 1,000 square foot 2-bed/2-bath rotting on the market for 161 days with a STARTING asking price of $269,000. The price has since been slashed to $218,750 and still no takers.

Especially with credit tightening and unemployment on the rise, our featured seller needs to get below $200 per square foot just to stay competitive in this undesirable neighborhood. But that would require kissing an additional $85,000 goodbye!

Given the reluctance to get aggressive so far, I don't have much hope that will happen.

We all know 401(k)s are being wiped out across the globe, but it's easy to forget that sometimes a person's home is the bulk of their retirement. Which, in turn, makes sellers on the verge of retiring that much more cautious about "cutting more than they have to" in order to protect their nest egg.

It's a damn shame. And it's yet another painful lesson of the Great Housing Bubble.

Friday, October 10, 2008

Nuked on Newport

Buddy, compared to what's in store for you, these first 49 stressful days on the market are going to feel like an AIG-sponsored massage at the St. Regis.

Address: 363 Newport #209, 90814
Asking Price: $190,000
Size: 1 beds, 1 baths, 606 sq. ft. (built in 1972)
$/Sq. Ft.: $314
HOA Fee: $252
Purchase price: $264,000
Purchase date: 9/2004
MLS#: P653088
On Redfin: 49 days
Down Payment: $38,000
Monthly Payment: $1,400
Income Requirement: $47,500
Description: This nice, bright and cozy one bedroom condo is conveniently located in the heart of Belmont Heights. Features laminate flooring, wood shutters in the living room and bedroom. Some upgrades in the bedroom, kitchen and bath. Located in a very well maintained and secured complex. Subterranean parking with storage.

I chose today's property because about six months ago I looked at a condo in this 60-unit building (to rent, duh). My first impression was: This building is kind of like 30 handicap parking spots in front of a roller derby rink: Nice, but a little odd.

It had a goofy, incredibly outdated "nautical" theme throughout the entire property, complete with sea-green trim and white wicker furniture in the lobby. Yeef.

As the current renter escorted me upstairs (she was really cute too. Blonde, about 5'7", very frie--BUT I DIGRESS), I couldn't help but notice how dark the hallways were. Whenever I walked near an occasional, too-widely-spaced light fixture, I caught peeks of the old paint and shoddy, dark carpeting. *Shudder*

Cute Renter must have read my mind because she mentioned the HOA was soon replacing the carpet and repainting the (over-textured) walls.

The interior of the condo was tidy and the fake wood floors were just fine for an apartment (This listing describes 606 square feet at "cozy," but "cramped" is more accurate. But I guess "you can do your dishes from the couch" is probably less effective from a marketing perspective).

Otherwise, the unit was "Lite and Brite" and suited my needs just fine. The building also has a pool (too small for meaningful exercise) and a well-kept underground parking garage with an impressive amount of storage. Overall, I probably should have rented it for $1,150 when I had the chance. Dirt cheap considering the parking situation and clean, mildly-updated interior, and I would have been able to save boucoup bucks while waiting for Long Beach home sellers to put the bong down.

Although I somewhat regret not renting it, you know what I don't regret? Buying one of these tiny units near the peak of the housing bubble.

You know who does? This poor chump.

Instead of making a fortune flipping condos, as TLC and HGTV told him he would, in just four brief years this loanowner watched his dreams of real estate fortunes crash and burn like Travis Barker's jet (too soon?), and will absorb a stunning $85,000 loss.

And that's assuming it sells at current asking price. For you frequent readers, we all know the story with that. About as much chance as Kato Kaelin cleaning up at the '09 Academy Awards.

Remember, a unit just like this (sans plantation shutters) was renting for $1,150 six months ago. I imagine the current economy and mounting job losses are applying significant downward pressure on rents, but let's just assume $1,150 is still the going rate.

The monthly mortgage payment, including principal, interest, insurance, taxes and HOA, hovers around $1,400. Sorry, pal. In these parts that's called "bleeding cash." Why pay more to "own" something that is guaranteed to depreciate further during the next few years?

And it WILL depreciate--much more than nearby properties. The reason? It's a one-bedroom condo, which historically absorb the most punishment during housing downturns. The primary reason for that is the limited buyer pool for these small properties.

Families are out--not enough room for junior. Retired folks looking to downsize from their 2,000 square foot detached home wouldn't be interested in a meager 600 squares. Even a very short, very thin couple buying their first place would shy away from something this cramped. Low income couple perhaps? Nope, too expensive.

So who is this shoebox for exactly? An investor.

And what does an investor want? Say it with me: A RETURN ON HIS OR HER INVESTMENT, NOT A MONTHLY BLOODLETTING.

So, I guess the $190,000 question is, What would be a good price for this place as an investor (seeing as how they'd be about the only people interested in buying this joint)?

If you take the December 2001 sales price of $126,500 and calculate a 4% annual appreciation rate, today this condo would be valued at $166,000.

However, at $166,000--a discount of $24,000--the monthly payment would still exceed equivalent rent by about 100 bones (By the way, I could have started the appreciation timeline at the 2000 price of $87,000, but I didn't want to make the seller cry).

Some could argue that once tax write-offs are factored in this investment is juuuuuust sneaking into cashflow positive territory. I would argue right back that marketing, upkeep, and vacancy costs would wipe out any tax benefit, but for the sake of compromise, let's assume that this boxcar racer meets rent vs. buy equivalency at $166,000 (assuming, of course, the seller is smart enough--and willing--to lop off another 12%).

Still no dice, caballero.



Ew, what an icky word.

As previously mentioned, the limited market for such a property virtually guarantees further depreciation. But on top of that, there are no significant kitchen or bathroom upgrades. The realtor must have "forgotten" to include those pertinent photos, but we have no choice but to conclude this is a standard apartment. Which means the next 12 months are going to be brutal.

It's like the current stock market:

"Wow, Gerald! Shares of GM stock cost less than a gallon of gas! I'm going all in!"

"Take it easy, Charlene. Why buy all those shares when GM's balance sheet and bad economic news coming down the pipeline indicate shares will cost less than a tall-boy Budweiser by next week?"

And that is exactly why undesirable properties--even those in somewhat desirable areas--will continue to get crushed. The housing bubble is no longer relegated to a few random blogs or obscure chicken-little economists--this is front page news. And nobody in their right mind wants to be a fool and catch a falling knife.

And as you ponder all of that, I want you to give a great big round of applause to the realtor for figuring out the flash on his camera!

Wait, is there a lamp taking a nap in the middle of that bed?! Told you this building was odd.

Arigato: UPDATE

Yet another RE in the LBC featured property sold!

Can you believe it?! And it went for the full asking price of $2,785,000!

Just kidding. It's still rotting on the market after 422 days.