Saturday, September 27, 2008

Where Are We Headed?

Some seem to think that the bailout - whenever it finally passes - will stop the downward slide of housing prices. I doubt it. As the post on Calculate Risk states "Right now prices are still too high."

Another very informative post looks at current housing prices from three different angles: real prices (inflation adjusted), price-to-rent ratio, and price-to-income ratio. All three indicate that prices still have ways to fall.

Wednesday, September 17, 2008


I discovered the house on the corner of Vineland and Kittridge in early summer, 2006. That area can be best described as a "dump," and the house looked anachronistic there. For starters it was on a really big lot. The house itself was smallish, with dainty peaked roof.

I climbed through the well worn hole on the chain link fence. There were big old trees surrounding the house, a bird bath to the side. There was graffiti all over. This green and black one felt strangely fitting.

There were a couple of extra buildings in the back and a boarded up gazebo.

Behind one of the buildings I found an old work bench. The whole place harkened back to an earlier time. Have there ever been orange groves in North Hollywood? I wouldn't be surprised.

A couple of weeks after my visit the house burned down. I sneaked through the fence again. The walls and the trees were still standing, but the roof was gone. I got my first peak into the house. The only recognizable feature was a white tiled fireplace.

Next time I drove by the house was bulldozed off. So were most of the trees.

There was a note on the fence, something about building an apartment building, or maybe condos. Then the notice was gone, but they haven't built anything. It's just a big empty lot now, with overgrown dead weeds, and tree stumps.

Tuesday, September 16, 2008

Charlie Rose - September 15, 2008

Luckily I just happened to land on the channel as the program was starting. I stayed up till 1 am to watch it. Then I watched it again on the web today. It is refreshing to watch smart people talk about issues - Wall Street in this case - without theatricality, taking their time, talking in a way that does not talk down to the viewer, yet understandable to the layman.

"A discussion about the crisis on Wall Street with Lawrence Summers, Andrew Ross Sorkin of The New York Times Charles Gasparino of CNBC, Josh Rosner of Graham Fisher & Co. and Nouriel Roubini:"

Saturday, September 13, 2008

Thursday, September 11, 2008

Land of Overpriced Shoe Boxes

In the Summer of 2007 I walked into an open house on Chandler, Burbank. It was towards one end of the newly constructed walk/bicycle path, within spitting distance of the high-voltage power lines. The house was 640 sq. ft. From the postage stamp size front yard I stepped into the living room, where the wall and even the ceiling had dark wood paneling, making the space feel even smaller. The normal size fridge was too big for the kitchen, I could only walk past it sideways. The bathroom was small, sparse and ugly. Backyard another postage stamp. The punchline is that the seller wanted over half a million for this ugly claustrophobic shoe box.

This insanity is apparently not over yet. Just look at this listing:

101 W Howard St Pasadena, CA 91103 ( MLS#: C07136762)
Beds: 1
Baths: 1
Sq. Ft.: 670
$/Sq. Ft.: $746
Lot Size: -

The description is a must read:
"Beautiful 2 bedroom 2 full bath home. With cool patio perfect for those family and BBQ gatherings truly a must see. Located in desirable area of Pasadena near downtown, shopping, freeways and schools. This cozy home is great for a small family and or a business executive. Tree lined street! HURRY, HURRY, HURRY THIS HOME WILL NOT LAST!"

"This cozy home is great for a small family..." A family of gnomes, perhaps? "...and or a business executive." A what?!?

There is also a little bit of discrepancy there. Is this a 1 br, 1 bath, or a 2 br, 2 bath? How on earth could you possibly squeeze 2 bedrooms and 2 full bathrooms into 670 sq. ft?
Like this I guess. Well, who needs to open that closet door, anyway?
The lot size is maesly 3052 according to county records, so it doesn't even have a huge lot going for it.

The seller who bought this house for $114,000 in 1999, and now wants to make a cool 440% profit on it. This begs the question: IS HE OUT OF HIS FRAKKING MIND?

I especially love the the last line of the description, since the property have been sitting on the market for 360 days! You'd think at the one year anniversary they'd change the description and, uh maybe knock the price down a notch, like, oh, 300k or so.

Wednesday, September 10, 2008

"Inventory in Los Angeles County is declining..."

...and the real picture:

Yes, technically it is declining, and sales are up, but if you step back and look at the full picture, you realize how tiny these movements are, and how deep in the doo-doo the market still is. Not to mentions that the Option ARM loan resets have barely started to make their effects felt.

(Graph from

Saturday, September 6, 2008

Some People are Still Trying to Flip

2721 Marengo Ave Altadena, CA 91001 (Listing #: 752760615)
Price: $525,000
Beds: 3
Baths: 1
Sq. Ft.: 1,300
$/Sq. Ft.: $404

This house sold 07/24/08, A bit more than a month ago for $425,000.
It looks like It's been renovated, fresh paint, hardwood floors, and do I see granite countertops? I must admit that glass tile thing over the kitchen counter is very nice. There is one discrepancy however. It is listed as 1,300 sq. ft, but the county records indicate 1,209 sq. ft. Did they do an addition? Does it have permit? All in all, not a bad looking flip, and seems to be priced along the lines of other listings in the area. It is questionable however how good a chance it has to sell at that price. It does not compare favorably with this other property:

4390 N El Prieto Rd Altadena, CA 91001 (MLS#: F1778214)
Price: $435,000
Beds: 3
Baths: 2
Sq. Ft.: 1,302
$/Sq. Ft.: $334
Lot Size: 8,220 Sq. Ft.
Very nice, newly remodeled house, same size, much bigger backyard, and location is as good, if not better, at a much better price.

**Edit: Further research uncovered that the first house was not for sale any more, the listing agent just never got around updating it. The final story of it is that it was listed for $525,000, but sold for a 100k less. The second house is still better.

Thursday, September 4, 2008

About That Granite

At the top of the housing boon era television was awash home buying, home selling, house flipping reality shows. The most atrocious of was Probably Flip This House! I expected it to be a This Old House meets the 21st century deal, but I was wrong. The shows were pretty much in one vein: flipping crew purchases run down property without proper inspection. They start working and discover that all kinds of things are wrong. They scratch their head, bitch at each other, and try to figure out the cheapest and fastest way to cover up the problems. The end result is a house that looks good on the surface but has shoddy workmanship. The whole thing was nauseating.

Ironically, at the same time there was another show on, a Canadian import, Holmes on Homes. This excellent home improvement show was centered around Mike Holmes, a general contractor extraordinaire. He took houses ravaged by lazy, incompetent or hack contractors, extensions, renovations gone horribly wrong, and fixed them up the way they should have been done on the first place. I have a feeling most of the houses from the other show would have qualified for this one.

But what does it all have to do with granite? I'll tell you. It seems that on every house flipping show I've ever seen the highlight was putting the granite countertop in the kitchen. The Sell This House type of shows too. "Having trouble selling your home? No, it's not because the pice is horribly inflated. You just need granite countertops!" One day people will look back at the granite countertop fixation of the early 21st century with the same horror as at wood paneling and shag carpeting.

I personally don't care too much for granite. I don't hate it, but can do without it just fine, and actually prefer butcher block. There is also this small issue of granite being more or less radioactive. One another alternative I'd like to try out is recycled glass countertops. Just look at these, they are awesome.

But the reason why I started obsessing about this is this: Last weekend, driving around Burbank I dropped in an Open House.

741 N Lima St Burbank, CA 91505 ( MLS#: F1765113)
Beds: 3
Baths: 2
Sq. Ft.: 1,958
$/Sq. Ft.: $327
Lot Size: 6,615 Sq. Ft.
Almost the first thing I saw upon entering was the remodeled kitchen complete with stainless steel appliances, and of course granite counter top. It was in sharp contrast with the rest of the house, none of which have been touched in decades. The online photos actually make it look better than it does in reality. For starters it didn't have any furniture. This half bathroom had peeling linoleum floor.
The main bathroom made me gasp. I suspect most of its parts date back to the original construction - in 1939.
There are no photos of the living room and I know why: It had a dirty carpet and yellow and purple walls. Seriously, is it so hard to buy a bucket paint and repaint the walls? There are also no photos of the small back yard paved over with concrete. This house is not a REO, an older person must have lived here. On a shelf of the closet of one of the bedrooms I saw stack of very old records, possibly gramophone records.

Overall, the house was not bad, but needs a lot of work, I don't think it's worse the asking price, no wonder it's been on the market for 127 day. So I guess granite cuntertop is not the magic bullet. I can't believe they spent money on that, but not on a bucket of paint.

The Secret Price Drop

2785 Fair Oaks Ave Altadena, CA 91001 (MLS#: P653943)
Price: $339,000
Beds: 3
Baths: 2
Sq. Ft.: 1,208
$/Sq. Ft.: $281
Lot Size: 8,100 Sq. Ft.

According to the listing this house has been on the market for 6 days, but as luck would have it I bookmarked this very property several months ago, as one with some potential, but too high a price tag. I noted the list price at the time - $456,000. That's a $117,000 or 26% drop from earlier in the summer.

Wednesday, September 3, 2008

Prices Are Moving (Down) Again

There was a bit of stillness in August, few new listings, no movement in prices, but after Labor Day it picked up again.

699 E Ladera St Pasadena, CA 91104 (MLS#: 22113837)
Beds: 3
Baths: 2
Sq. Ft.: 990
$/Sq. Ft.: $364
Lot Size: 4,997 Sq. Ft.

I'm curious how you can squeeze in 3 bedrooms and 2 baths in a 990 Sq. Ft house.

Listing Price History
Jul 30, 2008 $450,950
Sep 02, 2008 $359,950

That's a $91,000 drop in one month, a good 20%. Somebody is starting to get the message, though I think they are still a touch high, considering that it is quite a small house and nothing special. From the Google map image it looks like the only ugly house on a street of cute bungalows.

There is this other house just down the street:

810 E Ladera St Pasadena, CA 91104 (MLS#: Y805230)
No picture, though it's been on the market for 36 days already.
Price: $365,000
Beds: 2
Baths: 1
Sq. Ft.: 872
$/Sq. Ft.: $419
Lot Size: 5,000 Sq. Ft.

Listing Price History
Jul 29, 2008 $515,000
Aug 26, 2008 $365,000

That's a whopping $150,000 or 29% drop in barely over a month. I guess that's the bank getting desperate. Still, $419 $/Sq. Ft for a tiny house in "as is" condition? That's more than the previous house, which at least looks decent.

Beautiful California Home

A Rant About Real Estate

Few people would argue that real estate prices have gone out of whack the past few years, especially here in Southern California. Yet, few seem to realize how much those prices have to correct before getting back to realistic levels.

People's beliefs regarding the housing market seem to be based more on urban myths than facts. Just a year ago an otherwise reasonable person told me that housing prices never go down. It is not true historically, regionally, but was especially oblivious to reality at that time. The current myth that everyone seems to believe is "This is the time to buy. Buy now or miss the window." I don't believe that to be true. The real estate bubble left a psychological mark on people, making them think that completely outrageous prices are normal. Even now after the bubble have burst they can't quite grasp the real scale of things.

People seem to believe that we have almost hit the bottom and that prices are going to be merrily bouncing back up soon. I seriously doubt that. The subprime mess is not even over yet, and the Alt-A crisis is just starting up. Unlike subprime, these loans were given to people with good credit rating. Also these loans were by average larger amounts than the subprime ones. The borrowers of these were set to pay interest only for a set period (5-7 years) after which they have to start paying back the principal too, making their monthly payment jump up significantly. Seventy percent of these type of loans were given in California and Florida during the bubble. Their current state of payment delinquencies and defaults reflect perfectly how the subprime crisis started. There are also the Pay Option ARMs where the buyer could decide how much to actually pay at any month, possibly less than even the interest with the interest getting added to the principal. Many of these people after several years ended up owning more than the purchase price, ending up with negative equity. By all signs it looks like that the second, larger wave of foreclosure tsunami is about to hit our shores.

But lets put away the business talk and just look at the numbers, the basics: the SoCal median income is around $60k, the median house price is over $300k (over $400k in Los Angeles). No amount of urban myth can bridge this gaping chasm. Some people are expecting a mass of buyers rushing in for the now "affordable" prices. Let's be frank, the prices are not there yet, and the number of potential buyers is limited. Sure, lot of people want to buy, but most of those who were likely to make rush decisions, get over their heads have already done it the last five or so years. Those who are left are most likely to sit on their hands, window shop, and simply just wait it out. Not to mention that the tightening lending regulations now don't allow them to borrow more than they can afford.

Another urban myth is that everyone wants to live here and it makes the most outlandish housing prices acceptable. There is a tiny truth to it, you can expect to pay a higher percentage of your income on your mortgage payment here than less desirable places, but you can stretch that only so far, before it snaps like tired old rubber band. It's simple physics. The irresponsible lending practices of yesteryears have masked this simple rule for a while, and even though the market snapped, a lot of people rather put their heads in the sand than accept it.

There are forecasts out there predicting that the downward spiral will last for several more years and that the housing prices will slump to 2003 levels or even lower before starting slowly climb back up. Fortunately this is not like UFOs or the Bermuda Triangle, so in the next few years we'll see who was right and who was wrong.

Bubble/Bust Psychology

Relevant Links:
New York Times
Mr. Mortgage
Federal Reserve Bank of New York
CNN Money
LA Home Search
ABC News
Business Week
Dr. Housing Bubble
More CNN Money