Monday, May 11, 2009

Crazy Stuff

Sold For: $480,000 (11/15/2006)
Beds: 2
Baths: 1
Sqft: 809
Price/sqft: $593

This house marks the beginning of my interest in local real estate. It was the summer of 2006 when drove by an open house and decided to check it out. The house is on the Western edge of the Burbank section of Chandler Blvd.

I distinctly recall it being listed as 640 SqFt at the time. Either my memory is wrong or an extra 169 SqFt was added since. Either way, it was a tiny, shotgun style house sitting on a narrow strip of land. At the front was a small living room, next it split to two, bathroom to the left, kitchenette to the right. It was too small to be called a kitchen. The bathroom wasn't big enough for a full size tub. At the back were two small bedrooms and a utility area. The whole place have not seen any update in decades. The bathroom was repulsive, and the living room had ancient dark wood paneling even on the ceiling. I couldn't get out fast enough.

Probably somebody thought it was a steal for $480k in November 2006. I drive past it time to time. At first there were signs that the new owner was renovating, but then it stopped. The new fence has been sitting there unfinished for about a year.

After looking up the records, it turns out that the current owner bought it with 100% financing, most of it a variable rate loan. At current median prices this house is worth around $ 310K, but the prices are likely to continue falling in this area. Many experts think that we need to get back 2000 nominal prices to get back to normal pricing. At that median price the house would be valued around $162K. Either way, the house is already underwater, a foreclosure waiting to happen.

Monday, March 16, 2009


2220 Crawford Ave, Altadena, CA 91001 ( MLS#: 22122494)
Price: $519,000
Beds: 3
Baths: 1
Sq. Ft.: 1,081
$/Sq. Ft.: $480
Lot Size: 6,017 Sq. Ft.

"This lovely English Period Revival was designed and built by Elisha P. Janes in 1924. Original architectural details abound; coved ceilings, a multitude of original arches, multi-light arched windows and doors. The large living room and formal dining room are perfect for entertaining. The updated kitchen offers a built-in breakfast nook and pretty backyard views. The backyard is walled for complete privacy, both front and sideyards have lovely porches. A must see!"

Price History
Mar 13, 2009 Listed $519,000
Mar 13, 2009 Off Redfin
Feb 15, 2009 Price Changed $519,000
Feb 14, 2009 Price Changed
Feb 09, 2009 Price Changed $529,000
Feb 08, 2009 Price Changed
Jan 31, 2009 Price Changed $539,000
Jan 30, 2009 Price Changed
Jan 06, 2009 Price Changed $549,000
Jan 05, 2009 Price Changed
Dec 14, 2008 Listed $559,000
Dec 13, 2008 Listed
May 16, 2008 Sold $525,000
Mar 31, 2008 Off Redfin
Feb 27, 2008 Listed
Jan 19, 2001 Sold $230,000
Aug 10, 1998 Sold $170,000

It's a cute house, but it is small, sits on a smallish lot, and most of all at a not very desireable location. It's a corner lot (car radio noise, trash), one short block from busy Lake street and right across from a strip mall. This is the aerial view:

What I find bewildering that someone paid over half a million dollar for it as recently as May 2008. What were they thinking? By last May you would have to have lived in a cave not to know that the housing market was crashing. Did they fall for the hype that the bottom has here? Or maybe believed that it didn't matter how much you payed as long as you could afford your mortgage, but then fell on hard times? I don't know, but the house hit the market just short 7 months later. The last realistic price for this property was the 2001 one, at $230,000.

469 Vista Ave Pasadena, CA 91107 (MLS#: A09030212)
Price: $358,800
Beds: 2
Baths: 1
Sq. Ft.: 648
$/Sq. Ft.: $554
Lot Size: 4,300 Sq. Ft.

"This California Bungalow was originally built in 1922 and maintains its original charm and character. The property features many original features including built-ins that are mixed with modern conveniences like central air and heat and a newer kitchen and bathroom. Property is NOT an REO or short sale. Property has been well cared for and loved and is located in a great commuity. This home has so much to offer at an affordable price."

Price History
Mar 13, 2009 Listed
Mar 11, 2009 Off Redfin
Oct 10, 2008 Listed
Sep 26, 2008 Sold $310,000
May 31, 2008 Off Redfin
Apr 09, 2008 Price Changed
Feb 08, 2008 Price Changed
Jan 18, 2008 Listed
Aug 10, 2007 Sold $400,000
Jun 19, 2006 Sold $490,000
Jul 16, 2004 Sold $320,000
Jun 21, 1988 Sold $105,000

Looks like this tiny house on a tiny lot has been caught up in the real estate speculation. All the prices are completely unrealistic. The 2007 "sell" price is actually a foreclosure. However the 2008 price seems to be a real sale. Looking at the photos of the listing, new carpet, paint, etc., plus the fact that it was relisted just a month later, it's a pretty safe assumption that it is a flip. Right now the flipper likely to be desperate just to break even. It won't be easy, $554 $/Sq. Ft is ridiculously high.

Sunday, March 1, 2009

The Crisis Animated

A great animated explanation of the origins of our current crisis. It's a little bit long, but well worth watching, and really not that long.

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

Tuesday, February 10, 2009

Motivatedly Overpriced

70 W Mendocino St Altadena, CA 91001 (MLS#: 22120915)

Price: $435,000
Beds: 2
Baths: 1
Sq. Ft.: 858
$/Sq. Ft.: $507
Lot Size: 5,361 Sq. Ft.

"Outstanding FIXER/short sale/ foreclosure opportunity to upgrade to this Altadena neighborhood. Nestled at the base of the San Gabriel Mountains this gracious 2 bedroom, 1 bath home comes with Spectacular mountain views. Surrounded by an opportunity yard. Hardwood floors, cozy patio just outside a grand living room. Open layout to dining room, bathroom has been completely updated backyard features rear paved patio area (great for BBQ) gardening shed, and very large detached storage room. Close to mtn trail heads. 1 hour to Pacific Ocean beaches, and mtn ski resorts. The owner is VERY MOTIVATED as this property NEEDS TO BE IMMEDIATELY SOLD. CONTINGENT ON BANK APPROVAL - ALL offers will be entertained as this property is being sold as-is! Bring ANY and all offers."

Now there is a listing that suffers from multiple personality disorder. I don't know where to start, there is so much wrong here.

"Gracious"?! Ok, it has fancy windows. It's not like it was a craftsman.

"Opportunity yard" translation: the yard is a mess, expect to spend a bundle on it. Backyard is mostly covered in concrete.

Checking on Google maps, it doesn't seem to have a mountain view - it's blocked by the houses across the street that are upslope from it. I guess you could always climb up on the roof for a view.

The location is ok, not great, south of Alta Dena Drive.

But what bugs me most: If the owner was VERY MOTIVATED he wouldn't list it at $507/sqft - about $200 too high, especially since it is also listed as a FIXER, being sold as-is!

Seeing that the last sale price in 2001 was $166,00, you'd think he could afford to list it a reasonable price. Not so. It so happens that he refinance it in 2006 at the tune of $365,000.

I expect this house to sit on the market unsold for several month, be taken off, reappear months later as a foreclosure, priced around $260,000.

Sunday, January 25, 2009

A Fine Mess

These days it's impossible to talk about the real estate market and the economy separately. There are a lot of popular fallacies floating about, and many people use the economic crisis as fodder for their favorite prejudices. Last fall I was reading the newest post on a somewhat high pitched, but content heavy real estate blog, and was taken aback by the comments by posters. One made a racial epithet at Obama, another blamed all our problems on illegal immigrants, and the third declared that it was "a conspiracy of jewish bankers." I'm not making it up.

I recently had a conversation with somebody, and he laid the blame for the real estate crash and consequent economic troubles squarely on "minority lending." I can't say I was surprised. Our short attention span "news" media encourages simplistic answers and those pesky "minorities" - and poor people in general - serve as popular escape goats.

This same person also told me that it was all the fault and Fannie Mae and Freddie mac, and that the government "forced banks" to make those sub-prime loans. He also opined that the crisis was "limited to the finance sector" and that the economy wasn't all that bad all will be well within a few months.

I'm not an economist, or an expert in any way, but I've made a concentrated effort to understand what is going on behind the curtain. My motivation is simple: I hope to be a home owner one day, and hope to do it without the mistakes others made. Also I'm simply curious. I believe these are historically interesting times. I hoped never to live in such times, but might as well appreciate them.

The first fallacy about the real estate bubble that it is all about the sub-prime loans. In the next two years we will learn how false this is, as we hear more and more about the Option ARM and Alt-A mess. Another huge wave of foreclosures is heading our way, this time putting the crunch on the higher end of the market. (I suggest following West Side Bubble blog if you are interested in this segment of the market.)

The Option ARM and Alt-A loan calamity will void the "those greedy minorities caused this mess" myth. Dr. Housing Bubble had a very informative post about how toxic these loans are. They were given to borrowers with good credit, and generally for far larger amounts than the sub-prime loans.

Second fallacy is that it's all because of Fannie Mae and Freddie Mac. While no doubt these companies are problematic, they actually played a small role, especially compared to other financial institutions involved. An excellent article by Paul Krugman explains Fannie and Freddie in detail.

So how did this whole mess came about? It's a little bit complicated. It all started with deregulations that enabled financial institutions, Wall Street to engage in much riskier practices than before. Banks and mortgage companies begin to look for ways of making more money, so they relaxed their lending standards. This NYT article about how it happened at WaMu is an example of an industry-wide exuberant insanity and irresponsibility. From CEOs to loan officers, to appraisers got paid big bonuses for chasing the short term profit that ended up bankrupting companies. Countrywide's ad is pure comedy if you look at it now, but at the time it was serious. Real estate agents deserve a nod too. Their interest dictated that the more expensive the house was the better, and didn't care where the money came from.

The next big player was Wall Street as they bought the toxic loans from banks and sliced and diced them repackaged them and sold them off. Another NYT article helps to get a better grasp of this complicated mess that we laymen have a hard time understanding. Credit Default Swaps and leveraging feature prominently.

The biggest fallacy of all is "Housing Prices Never Go Down." Along with its little brother, "real estate is the best investment" this fallacy fooled a lot of people into taking unreasonable risks. Those two were basically used to clobber common sense. In reality, normally nominal housing prices keep going up only because of inflation. Inflation adjusted housing prices zig-zag around a base line, and are just as likely to go down as up. Overall real estate is only good investment if you catch a bubble and sell before it pops. It's riskier than playing the stock market. And well, apparently housing prices do go down.

But there is more. There is a deep ideological reason why this cascade of egregious mistakes and bad decisions was allowed to happen. Big Picture has a wonderfully lucid piece - a comment and critique on yet another NYT article - by Bailout Nation author Barry Ritholtz about the most fundamental reason that led us to the current financial crisis:

"...these decisions were driven not by pragmatic realism, not bad attempts at problem solving, but rather, due to an intellectual free market jihad. They were caused by a radical deregulatory zeal that could only be affected by “religious” ideologues."

Saturday, January 17, 2009