Thursday, December 25, 2008


The Million Dollar Short Sale

745 Linda Vista Ave Pasadena, CA 91103 (MLS#: 22119575)
Price: $999,000
Beds: 3
Baths: 2
Sq. Ft.: 1,721
$/Sq. Ft.: $580
Lot Size: 0.37 Acres

"This is a short sale and is subject to bank approval. The home is located near the Rose Bowl on desirable Linda Vista Ave. The home has undergone extensive interior remodeling including an updated kitchen with custom cabinetry, stainless steel Thermador appliances, granite counters, and hardwood floors. The lot is large but is in need of landscaping."

Property history:

Jun 30, 2006 Sold $1,065,000
Apr 27, 2001 Sold $ 575,000

It's been on the market again since April 30, 2008, with 3 price changes. I assume that was the owner chasing the market down. Now it's up for short sale with a listing with just $1,000 short of a million. I'm curious how this will work out.

Bank Silliness

75 N Mentor Ave Pasadena, CA 91104 (MLS#: 08-316525)
Price: $359,900
Beds: 3
Baths: 2
Sq. Ft.: 1,326
$/Sq. Ft.: $271

"Bank owned foreclosure. Don't miss this 1bed/1bath home! HW floors! Backyard! FP in LR! Info herein is not verified by agent. Buyer to verify all info. & rely on their findings. All offers must be submitted on CAR form w/pre-approval (NOT pre-qual), copy of earnest money check +proof of funds (if cash offer) & agency disclosure. Deposit check for loans $5K & up requires proof of funds. For a guarantee receipt of your offer please check our prvt. remarks for fax cover & faxing instructions."

First red flag with this listing is that while it's first listed as 3 br / 2 bath, the description says 1/1. A quick look at clears up the confusion. It is listed as an 810 sqft, 1 bedroom, 1 bath. Apparently last owner added an unpermitted 516 sqft. It's a big fat liability. If you buy this property, the city could fine you or make you tear down the addition at your own expense if it's not up to code.

At first glance $271 per square foot price seems good, but once you consider that it could be reversed back to its original size, that number jumps up to $444, plus whatever the demolition would cost. The property has been on the market since September and they drop the price at at even 5k every month. At his pace they will reach a reasonable price in a few years.

I especially like their demanding demeanor towards potential buyers. They should be begging people to take this turkey off their hands.

I do love the history of this property. It was sold for $750,000 in 2006, and then went back to the bank less then two years later for $652,963 owed. Seven months later the bank finally got around listing it for $379,900. If there ever was a poster child for the last seven years of real estate insanity, this is it.

Quote of the Day

"The phrase “self-regulate” is a non sequitur, a nonsense buzzword repeatedly by mindless parrots."

Wednesday, December 24, 2008

Tuesday, December 16, 2008

Saturday, December 13, 2008

It Was The Best of Times, It Was the Worst of Times

There was a week ago an article in the New York Times business section about the housing market. The author cheerily declared what a great time it was to buy. He even threw in a little old school scare tactics:

"Then, everyone who sat on their down payment savings accounts for a few years too long will kick themselves for not taking advantage of what may turn out to be the buying opportunity of a lifetime for those who can qualify for a mortgage."

It's worth reading the readers' comments. They rip the article to shreds.

There are people who will tell you that this is "the best time to buy". Don't listen to them, it's a lie. I had people telling me that last summer, and see how that worked out. The people who say it are either real estate agents, or average people who have no idea of the market, but heard it from others so they keep repeating it. Some home owners who want to believe that this is the bottom of the market and their homes won't lose any more value will repeat it as a chant. Some impatient would be buyers, chomping at the bits, want to believe it. It's not true.

I'm not saying it's not possible to make a good deal if you get lucky, and the stars align just right, but this is not yet the best time to buy. These are very turbulent times for the economy and people should exercise caution and solid judgment. I have a bad feeling that the economy is in worse shape that most people realize.

There is list of slogans that people who would want you to buy now like to use. Here they are, and my comments:

"This is the best time to buy!"

They have been saying for better part of the decade, and look where it got us. Just because people who look self assured and authoritative say something it doesn't make it true. Do your own research.

"Buying a home is the best investment."

Studies have shown that homes on the long run are not a very good investment, they pretty much just keep up with inflation. On short run they can be good if there is a bubble, but I would not count on a new housing bubble any time soon.

"Buying a home is not an investment, it's quality of life."

It is actually true, but only if you buy smart. Owning a home you don't have equity in is just renting with all the extra expenses, stress and responsibilities of ownership. If your mortgage payment is so large that you live month to month with no savings, have to worry about what if you lost your job, that is not a a great "quality" of life.

"It doesn't matter that your home will lose value."

If you are so rich that a few hundred thousand dollars here or there don't matter to you, then sure. Otherwise it matters a lot. If you buy a home and then it loses a large chunk of value in a year, that's money - plus interest - that you just threw out the window. Lot of things could happen. You could get a divorce, have to move for a job, have big medical bills, lose your job. Your family may outgrow your home and need to upgrade, or you may retire and need to downsize. In any of those case it matter if you have positive equity in your home that you can borrow against to get you out of a jam, or if you can recover your money when you sell. And it matters how big the actual profit it is when you sell.

"If you don't buy now you will regret it, you will be priced out forever."

Hogwash. The real estate snake oil salesmen were using this scare tactics for years. In normal markets home prices stay in step with inflation. Only in bubbles do they sprint ahead, and you should stay out of bubbles. Currently there is a huge supply of homes for sale, high foreclosure rates will continue for years.

"People who don't buy now are timid."

Oh, this one is just childish. What next, make chicken noises?

"Nobody can time the bottom of the market."

You don't have to. As a smart man said: "Housing markets don't bounce, they splat." When it hits the market it will be sitting there dazed and confused, and the eventual recovery will be slow and gradual. All the major elements that made the last bubble possible are gone. There will be no new bubble any time soon.

"The prices came down a lot from the peak."

That means absolutely nothing. The peak was so far removed from reality that you can't measure against it. You have to look at pre-bubble values. I fully expect prices come down to 2000. Maybe lower, because of the poor state of the economy. A deep recession could force home values significantly lower than they would normally be.

"Unless you have a crystal ball..."

Be wary of anyone who talks about crystal balls. It just means that they'll disregard all logical forecasts based on real data in favor arguments based on urban myth, anecdotal evidence and sentiment. There have been a handful of people who predicted the housing crash for years, in face of mass hysteria and public ridicule. Peter Schiff was the favorite whipping boy on Fox News. Paul Krugman was worried about a potential housing bubble since 2002. Check out YouTube for either of them. How did they do it? They looked at the numbers and did the math. There were no crystal balls involved.

I post this chart again, because it's incredibly important to be able to see the current situation form historical perspective.

Overall here at the end of 2008 we are on the cusp of very bad things. The situation will get worse before it gets better. Shrewd people can do make fortunes in bad times, but those who just think they are shrewd can be seriously burned. I would suggest to anyone who is wanting to buy a home to wait 6-12 months at least. By then you'll have a better picture of the economy and how it effects you. Prices won't be higher and inventory will be plenty big.

Tuesday, December 9, 2008

Tom Tomorrow

Paul Krugman is playing a cameo in the latest Tom Tomorrow Cartoon.

Saturday, December 6, 2008

Hundred Year Old House

Looking at new listings sometimes you see interesting stuff. Like this house built 100 years ago:

761 Boylston St Pasadena, CA 91104 (MLS#: 22119082)

Price: $199,000
Beds: 2
Baths: 1
Sq. Ft.: 1,044
$/Sq. Ft.: $191
Lot Size: 6,763 Sq. Ft.
Year Built: 1908
Area: Northeast Pasadena

"This REO is in TOTAL disrepair. Bring your contractor or . . . a bulldozer. "

They are not kidding. The place is in really sorry shape:

It's too bad, because if it had been kept up it could have some definite charm. My guess is it could easily cost hundred grand to fix it, possibly more if there are structural issues too. It probably would be cheaper and less painful to just bulldoze it off and put some condos in its place. It's unfortunate, I much prefer old houses with character than new ones without.

I wonder what made someone pay $375,000 for it last April. Was it a scam or flipping gone bad?