Sunday, April 26, 2009

One Foot Out the Door

Address: 4649 E 4th St. #16, 90814
Asking Price: $449,000
Year Built: 1985
Size: 2 beds, 2 baths, 1,401 sq. ft.
$/Sq. Ft.: $320
HOA Fee: $390 (!)
Purchase price: $560,000
Purchase date: 10/2005
MLS#: P683862
On Redfin: 10 days
Down Payment: $90,000
Monthly Payment: $2,700
Income Requirement: $128,000
Description: This 2 bedroom & 2 bath gorgeous condo is a must see. Turn key pride of ownership. Foyer entry, to gorgeous distressed wood floors throughout. The entire home has been remodeled with exquisite taste. Chandeliers throughout the home. Mahogany fireplace. New Kenmore appliances. In wall safe. Tumble marble flooring in bedroom and bathroom.

Yeah, but does it have a chandelier above the toilet like this guy? I didn’t think so.

Er, well, actually, close enough:

And what's up with the sink in this (cluttered, messy) bathroom? Is that another toilet?

It looks like the Stay Puft Marshmallow Man's hemorrhoid pillow:

The most significant aspect of this apartment is the 2002 sales price. $291,000 ($208 per square) seems like a pretty good deal considering the bubble had already been picking up steam by '02. But what the holy hell was our current seller thinking when he determined paying $560,000 just three years later made good financial sense?

20% annual appreciation seemed “normal” to you? Really? Hell, Bernie Madoff couldn't even hit those numbers.

And speaking of bloodsucking leeches, check out these creepy drawer pulls:

Is it just me, or do these bathroom cabinets look like the cheap-o 1985 originals with a half-assed paint job?

Anyhow, I still find it amusing when people compare current asking prices to peak-o-the-bubble prices and conclude it must be a "good deal” because it’s “X% off.”

What they don’t consider is what the property sold for pre-bubble. When we finally hit the bottom, most properties will have fallen (at least) to their pre-bubble prices and considering how much “equity” has been wiped off the face of the planet in such a short amount of time due to this unprecedented, now undeniable housing bubble, people need to use pre-bubble prices as the pricing starting point. Moving backwards from an artificial, reality-defying, Ponzi-scheme-derived sales price to determine "value" is as useless as a kickstand on a tricycle.

This condo is a perfect example. The current asking price of $449,000 is “20% off” the 2005 price of $560,000.

“Wow! What a steal!”

BUT, today’s price is an astounding 54% ABOVE the 2002 price (which isn’t even a “pre-bubble” price--it's two full years into the bubble). Considering most Long Beach condos are selling for 2003 prices and headed lower, is this still a “smokin’ deal?”

It’s all about perspective.

As you can clearly see, this individual picked a REALLY bad time to buy, and an even worse time to sell. If this seller can find a sucker to pay the current asking price of $449,000, the loss to the loanowner will be $137,000--not including the costs of upgrades.

If we’re nice and estimate the seller spent $40,000 on “distressed” (just like the seller!) wood floors and other upgrades (which will be fortunate to fetch $0.50 on the dollar in this highly-competitive, post-“Flip This House” environment), the seller will face a catastrophic loss of nearly $160,000.

Wow, that’s about $40,000 in depreciation for every year of ownership!

But it gets worse. That's because this place has ZERO chance of selling for $449,000. Sure, this large apartment is nicely appointed (bathroom cabinets notwithstanding) and has every amenity you could ever need (pool, inside laundry, two secure parking spots. etc.) but the days of half-a-million-dollar non-beachfront condos are dead like personal responsibility.

Some might point out that the price per square foot isn’t that crazy compared to the neighbors, but the point is the neighbors aren’t selling either!

I think this seller could find a knife catcher if they slashed $65,000 from the demand tonight. They don’t know it yet, but if they accepted $385,000 right now it would be the best thing that ever happened to them. My prediction is they’ll reject such “lowball” “scavenger” offers throughout the year only to discover in winter that the market has completely passed them by. Only then will they realize that $385,000 would have been a phenomenal deal.

But they can't go down to $385,000. Because although they might have enough equity to absorb a $160,000 loss (keep in mind this is not a short sale!), a $225,000 loss is a completely different animal. Which means this will eventually become a short sale.

And given the ever-growing volume of distressed properties lenders must contend with, the bank probably won’t be able to act quickly enough to prevent this from going into foreclosure.

Hell, some of the photos make me think the seller already has one foot out the door:

Gold records stacked neatly along the wall...

Crap in boxes (lit beautifully by that chandelier, by the way) ready to go...

It appears as if they're already waving the white flag. And with a ~$3,400 monthly payment, it's not difficult to see why.

The good news is, once wannabes like this are purged from the market and Long Beach real estate values return to some semblance of reality, you and I will be able to snag swanky little apartments like this for reasonable, affordable prices.

Be patient. We'll get there.


  1. Agree, good price for todays knifecatcher. I'm waiting for at least another 2 yrs for
    all this to shake out.~200K (or less) will see
    these type condos. Cash will be king too..
    Seriously, we can't imagine how bad it's going to get. Wait till the credit crunch hits. Arnolds tax hikes wont help either.
    The PTB can't see it coming, I can.

  2. I have found another new WTF listing for 90808.

    Check out 3361 Kallin.

    2/1, 965 sq. ft.

    Asking price...

    $ 479,900.

    Purchased in 2003 for $ 304,000.

    Watcha gonna do when crashamania runs wild over you!!!!