Monday, February 15, 2010

Everybody Must Get Stoned

Wow, two whole photos!

Address: 564 North BELLFLOWER Blvd #201, 90814
Asking Price: $345,000
Beds: 2
Baths: 2
Sq. Ft.: 1,028
$/Sq. Ft.: $336
Year Built: 1970
MLS#: P721365
On Redfin: 2 days
HOA: $357
Down Payment: $14,000(FHA)/$70,000 (20% down)
Income Requirement: $100,000
Monthly Nut: $2,400 (FHA)/$2,100 (20% down)
Description: Completely remodeled Stoneybrook Villas 2 bedroom 2 bath condo overlooking main greenbelt & pool area. Close to elevator & parking. Enter to gleaming hardwood floors, totally remodeled granite kitchen, updated bathrooms, large bedrooms, both with walk-in closets, huge patio with access from both bedrooms & living room. You will truly enjoy this great location and excellent condition.

In The Year of The Cock (2005), today's seller purchased this little apartamento for a cerebellum-melting $450,000. That's right, almost half a million clams.

And now, after almost exactly five years (anybody else smell an Option ARM recast?), he's got it on the block for $345,000. Including commissions, Scuba Steve here (get it? Because he's underwater? Hey-ohhh!) stands to lose $125,000.

This, I'll remind you, is not a short sale (yet). And even if he had a conventional loan (which I seriously doubt, given the purchase date), there's no way he has enough equity to escape without a brutal hit to his pocketbook.

Below is the listing history. I want you to pay particular attention to the activity between 1988 (near the last peak) and 1999 (near the beginning of the new bubble):

Feb 11, 2010 - Listed $345,000
Jun 09, 2008 - Delisted
Apr 24, 2008 - Listed
Jul 25, 2005 - Sold $450,000 21.7%/yr
Sep 27, 1999 - Sold $143,000 -1.2%/yr
Nov 17, 1988 - Sold $163,000

That's right. The housing collapse in the early 90s wiped out that owner's value to the point where it took him 11 years to approach his purchase price. And he still had to cough up tens of thousands of dollars to get rid of it.

You are seeing the future of those who purchased during the peak years of The Great Housing Bubble. And this time around it may take even longer for a return to peak prices.

By the way, get a load of the 1999 buyer's impeccable timing. He bought at a good time, unloaded to this sucker at a great time, and walked away with three times the amount he initially invested six years earlier. Wow. (Of course, he probably just leveraged that money into another woefully overpriced property and is now in a similar situation under the sea.)

As far as this property goes, it seems alright. Nothing special. The kitchen doesn't seem to be much to write home about and although the floors look nice, I don't see much to differentiate this apartment from any number of nearby, similarly priced properties.

I guess you get two garage spots, a pool, and tennis courts (which you will never, I repeat, never use), but you also have a $357 HOA, two common walls, and those garage spots are tandem. Yuck.

Oh, did I mention the community laundry? DEAL KILLER.
Given those significant disadvantages, it's clear this asking price is way out of line with reality. Hell, Stoney Brook two-bedrooms are renting for only $1,625! That means to pencil out in a rent vs. buy calculation, the price would need to be around $230,000!

Think that's too low?

Well, consider that the median income for this zip is $57,182. If you calculate 4x income (which is stretching it, but common for Southern California buyers) you get a value of $229,000.

Need more evidence this asking price is nuttier than squirrel shit?

If you apply a 4% annual appreciation (ignoring the bubble and subsequent crash) to the 1999 purchase price of $143,000, the current value would be $220,000. Add in some money for minor upgrades (the claim that this place is "completely remodeled" is "completely made up") and you're at about $230,000.

Still need more convincing?

On a $230,000 property, the monthly nut with a conventional loan would be about $1,500. Assuming a family makes the median income of $57,182, if you apply a 31% debt-to-income ratio (which even the governement is now using as its absolute cutoff for most mortgage modifications) would be...drumroll please...$1,477.

Well would you look at that? Four unbiased (albeit quick and dirty, so give some wiggle room to those figures) calculations versus one delusional seller. Who you gonna believe?

And given the relatively high HOA fee and dreadful apartment living offered here, $230,000 is about what I'd pay.

But I'm smart.

Many people are not.

Which is why I expect this flat to sell relatively soon to a stoney buyer for about $315,000. And although he'd be buying at a significant discount to the peak price, he'll quickly learn, just as the 1988-1999 owner did, that prices have to hit a bottom before they can start climbing to the top again...and that can take a very, very long time.


  1. El Bee,

    I'm constantly stunned at the lack of critical analysis done by many buyers. Understanding some basic priciples, like those illustrated in your quick and dirty calcs, would've saved many people the pain they're experiencing. WTF? I know otherwise smart people who are currently looking at overpriced properties because "it's so much cheaper than it was."

  2. Walked into a couple of open houses this weekend. They were swamped!
    Teachers and other government workers with solid jobs, and regular raises, are still buying.
    Let's make everyone a government worker.
    Problem SOLVED!!

  3. Anon, I hope they weren't math teachers. That would be sad.

    And yeah, why do these complexes always have tennis courts? Builders of yesteryear must have assumed that every single potential condo owner was yearning to play tennis.
    Perhaps they have tournaments and the winner doesn't have to pay HOA for that month.

    Speaking of, there's a large complex near me that has about 300 units (and a tennis court, and a pool you could swim the length of in two strokes). HOA is $600 a month. $600 x 300 = $180,000 a month they're raking in!! Or just over $2 million a year. For what? Where is this money going?

  4. An HOA is a great representation of how Govt works. Ever-increasing dues that never really amount to much in reserves as much of it gets sucked away by many layers of HOA contracted management. Any time a large expense comes about(roof/paint/termiting/structure/etc.) the owners are leveled with an assessment as there is usually not enough in reserves to cover those costs. HOA rules typically dicatate that there needs to be some min in reserves at all times, which makes this that much more of a challenge. The only difference would be that the HOA cannot typically borrow itself into oblivion like the Gooberment.

  5. In our HOA, they decided to buy a building for the office, rather than rent office space for the HOA management. Each house was assessed around $3,000. and the office building was built,and paid for, without a mortagage.Not paying $60,000. in rent a year should have meant a decrease in HOA dues. Instead, the employees gave themselves "a much deserved raise", and the HOA members got zip.

  6. I think it's a matter of time until potential buyers/current owners say enough is enough and the HOA system is re-vamped. It's ridiculous. This listing highlights it perfectly. $300+ for what? RIP-OFF!

  7. Some good comments here.

    Anon's story about building an HOA office is unreal. I keep hearing all this crap about "well, houses cost a fortune because of the maintenance costs--an HOA is much better."

    First, as a HOMEowner, you have a CHOICE as to what you repair and when. You're not being held hostage to the whims and desires of the HOA board (new offices, special assessments, etc).

    Second, if you own a home YOU are in charge of budgeting, not a bunch of people who can barely balance a checkbook and are incapable of saving for a rainy day.

    Third, most HOAs are not responsible for anything within the walls of your unit -- it's not like all maintenance and utilities are included. If your condo's dishwasher craps out, most HOAs won't cover that. So you're in the same maintenance boat as someone who owns a home (and that homeowner doesn't worry about the hassles of community laundry or shared walls).

    The more I hear from you guys and the more I learn about HOA board shenanigans, the more convinced I am that I will never own a condo (at least without doing some serious investigation of the HOA beforehand).

  8. This blog is just as educational as any of my college courses.

    I love it.

    And I of course agree about HOAs. As an accountant, I definitely see the advantage of pooling money for shared expenses, however when you factor in the corruption of people/vultures, what is the real gain?

    Answer - there is none.

    I DO hear from many home owners that "unexpected expenses" always pop up.... Well I'm sure that they do, but if you mulitiply a low HOA fine of $300 times 12, that's $3600 a year.

    How many of you homeowners have $3600 of repairs needed each year?

    What, the water heater?




    $3600 could knock out three of those in just the first year, and then when's the next time you're gonna need to address it?

    I'd rather be able to save my own money, and do without a repair for a while, if I need to stretch my finances.

  9. In many cases HOA boards are puppets of seasoned property managers. We moved into our home last July, since I didn't miss a single meeting. People listen to rational arguments, and in our case it made a huge difference. I've demanded transparency. The property manager, who ripped off our complex for about ten years, tried to sweep my questions under the rug. With the help of my accountant and condo manager friend I was able to show the gaps, and what a shock, the crook resigned immediately. Since, our 17 unit complex has an extra $1000/month to save for rainy days. The moral of the story, HOAs and property managers must be constantly pressured to maintain transparency.


  10. Olaj, nice!!

    That is awesome.

    If I'm ever stuck in an HOA, I'd hope to have someone like you in it!!

  11. Oh yeah, and El Bee!

    Regarding HOAs, CHECK THIS OUT!!!!