Wednesday, June 10, 2009

Cracking the $100,000 Threshold

Address: 2507 E 15th St #213
Asking Price: $99,900
Year Built: 1988
Size: 2 beds, 2 baths, 842 sq. ft.
$/Sq. Ft.: $119
Purchase price: $230,000
Purchase date: 12/2004
MLS#: P685972
On Redfin: 7 days
Down Payment: $20,000
Monthly Payment: $1,050
Income Requirement: $28,000
Description: End unit with upgraded bathrooms and flooring. Laminate wood flooring from the entry to living room and hallway. Ceramic tile flooring in the bathrooms. Indoor laundry. Balcony with a view of Signal Hill accessing to and from both bedrooms and living room. Complex has recreation room, community spa and BBQ. New painting of exterior in progress.

You have to love that cut-and-dry property description typical of short sales. Even the listing agent is rolling back his eyes and asking, "Ah, what's the point?"

"Condo. Has floor and roof. Toilet and shower. Bah, fuck it."

I mean, check out this tell-tale Waving the White Flag photo:

"Meh, whatevs."

And the agent's eyes aren't the only thing rolling back: The current asking price not only represents a 2000 price, it's actually the equivalent of a 1988 price!

Apr 06, 1990 - Sold $125,500
Jul 19, 1994 - Sold $133,996
Dec 16, 1994 - Sold $83,500
May 23, 2002 - Sold $115,000
Dec 01, 2004 - Sold $230,000
May 04, 2009 - Listed $99,900

Mind you, the 1988 price is what it cost when it was brand new!


Like a 2x4 to the face! Right, Hacksaw Jim Duggan?

If it weren't for the outrageous $442 HOA, this apartment would be dirt cheap. But even factoring the additional $442 month HOA (your HOA fines are almost as much as your principal and interest!), at $99,900, it still pencils out. Let's look at the fundamentals:

LOCAL MEDIAN INCOME: $38,705 (Check! Income requirement is $28,000)

3.5X INCOME: (Check! 3.5X $28,000 is $98,000)

LOCAL RENTS: $1,200 - $1,300 (Check! PITI+HOA is $1,050)

PRE-BUBBLE PRICING: $100,000 (Check! Asking $99,900)

This, my friends, appears to be the bottom for shitty Long Beach neighborhoods. If it gets any lower for 2-bed/2-baths, we're probably in a Depression--and you would have much bigger fish to fry than house-hunting (like, say, stocking up on ammo).

Or is it the bottom?

Just ask this guy who bought in this building late last year thinking the bottom was in:

$148,500 2507 E 15th St Unit 313
Sold on Nov 17, 2008
0 miles 2 bd / 2 ba 842 Sq. Ft.

If our featured squat sale is approved at the current asking price of $99,900, in just seven months the buyer of #313 would already be -$50,000 underwater. That's almost 35% underwater in half a year!

Or, ask this guy:

$149,000 2507 E 15th St Unit 215
Sold on Dec 08, 2008
0 miles 2 bd / 2 ba 877 Sq. Ft.

A mere six months after his "bottom" he's $50k in the hole.

Maybe we should give this 2009 buyer ("I'm telling you Martha, it can't possibly go any lower!") a holler and see how he feels about being $40,000 underwater in a matter of months:

$139,500 2507 E 15th St Unit 120
Sold on Jan 16, 2009
0 miles 2 bd / 2 ba 856 Sq. Ft.

Remember, friends, no matter how great deals may seem at the moment, nobody knows how much worse unemployment is going to get before it gets better. The unfortunate bottom callers I just highlighted obviously didn't think things could get any worse, and look what happened. Don't make the same mistake they did.

And especially considering the numerous short sales in this building (btw, according to the sales history our featured seller is "short" by $131,000!), it's quite possible these still have further to fall and will fall well below rental parity when the bubble finally, mercifully, deflates.

And even if you have no interest in properties in bad neighborhoods like these and are looking in neighboring zips closer to the beach, $100 per square foot for newer construction in 90804 is going to put significant downward pressure on adjacent neighborhoods with older inventory.

Right, tarp-covered Pac-Man?


  1. What's with the sold for $2000 in November 2005?

  2. El Bee, the HOA's look to be $442. In the listing there is a $342 for Dues #1, and $100 as Dues #2.

    An extra $442 per month???? I sense a $90K sale.

    and yet, the area I am looking (90808) is hanging on.

  3. Can someone explain to me how in the hell 50 year old Seal Beach Tract homes are still at the 700K level? I know that the school ditstrict is supposed to be top rate, but these prices are still in the WTF range. Until we see areas like these drop another 25%, we are nowhere near a bottom. I'll keep waiting. Lots of sellers still in denial.

  4. Anon,

    The bubble mentality was beat into our heads during the last few years. Just think of some of the magazine covers, book titles, and television shows during the bubble. The sense of entitlement was (is?) as much a part of the American fabric as summer baseball and shitty mpg.

    It will take a long time for the pervasive sense of entitlement to fade. But, Los Alamitos School District is no joke, so I woundn't hold out for utter equity devastation in Seal, Los Al and Rossmoor. Those houses will be the last to bottom, and for good reason. But, although they may not fall as much, they still have some major pain on the way.

    They'd better enjoy living in their $500 per square foot fantasyland while they still can...

  5. I am assuming you mean that 90808 better enjoy their fantasyland, since I know for a fact that Milliken isn't all that hot of a high school.

    Marina is a better school.