January 30, 2007

Real Homes of Genius: $438,000 for 816 square feet in Pico Rivera! Another Example of Manic SoCal Housing!

The housing speculator-orgy-mortgage-bubble keeps marching on to a different beat in sunny Southern California. Today we salute Pico Rivera for giving us this wonderful example of loony housing prices. When we are talking about $536 per sq/ft we are not describing a posh home in Malibu or a nice fixer upper in Brentwood, we are talking about Pico Rivera. The home above is currently listed for $438,000 after being dropped by $10,000 (what a deal!). This home has been on the market three months and somehow I think it will stay there for a while, just a hunch. Let us examine the previous sales history:

So let me get this straight, you’re telling me this home is worth $238,000 more than it was in 2002? To break it down further, this uber-wealthy home went up $59,500 per year; much higher than the annual family median income in the area! Now I understand those late night commercials with the folks in the Hawaiian shirts and the golden tans; why work when owning a house produces more money than a 9 to 5 job. Let us all live in our houses and perpetually get rich. Here I was feeling bad that David Beckham was going to get $250,000,000 for five years essentially being a poster boy for the LA Galaxy. Now all we need to do is buy a home ANYWHERE in Southern California and ride this wave to another housing galaxy.

We salute you Pico Rivera with today’s Real Homes of Genius award.

January 25, 2007

Foreclosures jump statewide by 40% in California in just one quarter! Welcome to California’s Gold!

Yee-Haw!!! Wow, talk about a major jump in foreclosures. We did mention this would happen a few times but hey, what do we know right?

Foreclosures and Housing Bubble
When will my home cost me an ARM and leg?

There are many graphs out there showing that foreclosures are at 10 year highs but I wanted to post a graph showing the last eight quarters for California. Again, sounding like a broken record, we knew this would happen with rates resetting, inventory increasing, and prices declining. Even worse, a stagnant market does nothing for current sellers because the sub-prime market has attached a bomb to each home that will go off in one, two, or even three years. Each neighborhood has these sub-prime bombs; maybe even you are one of these and don't even know it??? Why the major jump last quarter?

As you can see from above, we are at the peak of resetting season. The Mortgage Bankers Association estimates that $1 trillion in loans will reset this year. You may ask, “Dr. Housing Bubble, mortgages reset last year and we didn’t see such a drastic jump, why was this?” Well my dear readers, this is called selling to the last fool. Not only that, but the buck has been passed around so many times that we have a hard time seeing who is the initial culprit. In 2005 and 2006 25% of all mortgage originations were in the sub-prime market. Currently we are seeing the 2003 and 2004 resets hit the market:

So ask yourself, if mortgage defaults jumped this much in a market that is slightly declining what will happen when the 2005 resets occur later this year?

“Oh boy! Do we got some stories to tell!”

And remember folks, we are just starting to see REOs hit the market in significant numbers so you can only guess what this will do to the median price. This takes time as you can see below:

We are in for a lot of action in 2007 and I like to welcome you to California’s Gold Housing Market!

January 23, 2007

Of Bubbles Past. Need a Map for Housing? Ask a Housing Perma-Bull and They’ll See the World Through Colored Glasses!

For those that think we are in some sort of housing vanguard and think housing can never go down I ask that you only need to look back 10 years. Many folks are baffled as children watching a magician pull a white rabbit out of a hat because housing sales volume has fallen through the floor recently yet prices are still going up. Just take a look at the headline from this month’s housing report via DataQuick:

“January 16, 2007
La Jolla,CA----Southern California's housing market continued to send mixed signals last month as prices reached a new peak while sales volume remained at a ten-year low, a real estate information service reported. DQNews.com

There is a brief history of the California housing bubble over at History of Housing Bubble and I think it is worth your time to read. I have posted the key headlines in bold below but also encourage you to focus your attention to 1989. As you can see below, it is parallel to what is occurring right now. Prices climbed in the first part of the year but sales continued to drop precipitously as the year trailed on. We see sales prices climbing until May but slowly decrease after summer. How can the parallel be so uncanny? Well the answer is two fold and part of the nature of housing. First, most folks plan on selling homes either late spring or early summer. Anyone that has worked in real estate knows that these are peak selling seasons. Second, in a healthy market this is when inventory moves at a good pace but what you see happening below is that a glut of housing hits the market while folks stand on the sidelines. By the end of 1989, we begin to see a continued drop in sales and finally a price decrease statewide. This is how a housing bust begins. Don’t expect bells and whistles to go off; the housing crash will occur one home at a time. Most perma-housing bulls would like you to believe this time is different; well I’d like to believe the Easter bunny will give me some Lakers tickets tomorrow but I somehow doubt he will.

The point being is that housing goes through cycles that are rather predictable over a long horizon; I’m talking about decade long cycles but most folks now a days especially the NAR want to use scare tactics to make folks buy homes. “Buy now or be priced out forever!” is the rallying cry of these warriors. Yet the one thing that we have not seen in past bubbles is the massive amount of credit and risky mortgages that we currently see flowing through the rivers of urban blue and red USA. Yes, risky mortgages were part of the game in the last boom/bust but not to this extent. In addition, never had we placed so much reliance and faith on one sector of the economy that really doesn’t produce something new or increases our productivity. Do you think trading houses all day is going to make us a stronger nation? I’m waiting for a poster of Uncle Sam to pop up with him holding a home pointing to Joe Public with the caption, “buy now, only homeowners are true Americans.” Keep in mind in the 90s we had the technology boom that shouldered much of the economic prosperity after the housing market busted. But what will come to save the market of today? Clearly we are on the same path as below but the magnitude has never been so incredible; maybe we should all buy some perma-bull glasses and zone out for five years!

1985-1986: Housing is booming, inventory is low.

1987: Housing still booming, prices increasing, inventories low.

1988: People start to question the boom. Realtors assure us the boom will continue. Houses aren't like stocks afterall.

1989: Prices are very expensive; affordability an issue. Sales slow and prices drop. Mention of risky loan types.

Housing Prices in State Climb 3% in February
Furlong, Tom; Los Angeles Times; Mar 29, 1989; Vol. 108, Iss. 116; 4; pg. 1

Stock of Unsold Homes Drops Dramatically
DAVID M. KINCHEN; Los Angeles Times (pre-1997 Fulltext); Apr 2, 1989; pg. 9

How First-Time Buyers CAn Get Their Piece of the Dream
Myers, David W; Los Angeles Times; May 21, 1989; pg. VIII1

State's Home Sales Drop 14% Median Price Tops $200,000 for First Time
Crouch, Gregory; Los Angeles Times; May 25, 1989; pg. IV1

Sales of Existing Homes in State Fall During May
Furlong, Tom; Los Angeles Times; Jun 23, 1989; Vol. 108, Iss. 202; 4; pg. 1

Orange County Home Sales Drop by 22% in May
TOM FURLONG; Los Angeles Times (pre-1997 Fulltext); Jun 23, 1989; pg. 1

Realtors Tackle New Topic: How to Handle Slow Housing Market
Myers, David W; Los Angeles Times; Oct 1, 1989; pg. VIII1

Prices Drop, Sales Slow in State's Housing Market
TOM FURLONG; Los Angeles Times (pre-1997 Fulltext); Nov 29, 1989; pg. 1

Housing Affordability Rises Outside L.A., Orange County
Kristof, Kathy M.; Los Angeles Times; Dec 06, 1989; Vol. 109, Iss. 3; D; pg. 1

Survey Cites Four California Banks With Possibly Risky Realty Loans
JAMES BATES; Los Angeles Times (pre-1997 Fulltext); Dec 30, 1989; pg. 1

1990: Prices take a serious plunge.

1992: No one is buying; housing is an investment that no one will touch.

1993: It's definitely a buyer's market. Some people are saddened by the fact that current prices are 50% of what they were in the 1980's.

1994: Housing begins its comeback. People who had the intelligence to wait for the bottom are buying now at great values.

1995: Some parts of the Southland are recovering others are not. People with "negative equity" are in despair.

1996: A tentative recovery is still in the making.

1997: Finally, housing has recovered.

January 22, 2007

Real Homes of Genius: 675 square foot home in Lynwood California at $425,000?!

Today we salute Lynwood California with the Real Homes of Genius award for Southern California. If you thought denial was only a river in Egypt, you need to take the 105 toward Lynwood and find some folks living in Wonderland; and I’m not talking about the posh rehab center Lohan is slumbering at. Today’s example is a 675 square foot home featuring an amazing 2 bedrooms and 1 bath. Even though this square footage is normally reserved for studios, you’ll notice that sleeping on top of your family members is rather enjoyable, especially 300 pound aunt Jenny. Not only that, but this home was built in 1937 so you’ll enjoy some pre-World War II smells as well. This home has been on the market for 154 days and had a reduction last November from $460,000 to $425,000.

What a generous seller, they have given us a cut of $35,000 merely for waiting an extra 2 months. But how much did they pay for this place?

Bwahahahhaha! Yes, you read correctly this place was purchased in 1998 for $78,000 and in 2005 for $290,000. So this person is trying to make the equivalent of $100,000 per year merely by living in this place. Talk about a massive flip! Again, those that deny the bubble need to check themselves in to Wonderland and join Lohan in their path to a sober recovery.

January 18, 2007

Housing Bubble Blog News on the Decline Year-on-Year? What is Going On?

There was a post on a housing blog recently talking about the decrease in those searching for the illustrious “housing bubble” we all know is here. The way the article was written, they were trying to point toward a decrease in housing bubble blog news with the implication that housing bubble heads like myself are on their way out. Are you kidding me? The fun is just beginning and I’m not sure the breadth of their research but I’ll like to point something out and show the shift in housing energy.

As you can see from the above Google Trends picture that I queried, yes those searching for “housing bubble” or “real estate bubble” information did decrease. The peak was in Q2 and Q3 of 2005. Yet we notice a new birth at this time as well. Like the sun peaking with orange and yellow rays over the horizon we begin to see the emergence of a new trend; we see the dreaded words of crash appearing. Interestingly enough we see this trend sprout up about the same time that the other “bubble” trend peaked. Now we are seeing the word “crash” appearing in a significant amount to be spotted on the Google radar.

I have no patience for those saying “yes, we just had our correction and now it is time to jump back on the housing appreciation bandwagon.” There was no correction! I almost feel like someone is trying to convince us still that there are WMD in some part of the world. Do your own research and crunch your own numbers. The conclusion should be rather obvious.

January 17, 2007

Real Homes of Genius: Today we Salute Inglewood at $430,000 for a 941 Square Foot Beauty!

I will let you gather your emotions after seeing the amazing beauty above. Are you okay? I know after seeing an example of architectural ingenuity for such a reasonable price you must have your cell phone in hand plastered to your ear dialing away to your real estate agent. Today we have a 941 square foot home with all the amenities a 2 bedroom/1 bath home can provide. Even though this home has been on the market for 152 days they fail to reduce the price significantly:

Price Reduced: 09/19/06 -- $449,000 to $445,000
Price Reduced: 09/25/06 -- $445,000 to $440,000
Price Reduced: 10/12/06 -- $440,000 to $435,000
Price Reduced: 11/07/06 -- $435,000 to $430,000

As you can see, they are doing the monthly housing cha-cha hoping that spring and summer will bring them their desired Wonderland price as if in a drug induced trance. This post was inspired last night because after watching a singer from Inglewood on American Idol (yes, I confess I watched the first episode) I thought what better way to honor today than produce a home from that neck of the woods. But of course this seller is asking a reasonable price right? Let us look up the previous tax sales records:

Sale History
03/24/2000: $111,000
04/14/1999: $128,411
09/19/1997: $118,500

Wow, are you telling me that properties in California can actually go down for multiple years? Besides that jaw-dropping point, this seller is delusional as only those in the California-Equity-Giant™ machine can be and is trying to make a $300,000+ killing in only 6 years. But again the real estate syndicate is pushing suicide loans to sub-prime borrowers so I wouldn’t doubt this thing actually selling. Probably won’t matter since you may not make it to see the end of your 30 year mortgage in this area. So that’s the bright side!

We salute you Inglewood for being a Real Home of Genius.

January 16, 2007

Time for Mortal Kombat Housing! The Subprime Market will face a Fatality in 2007!

Why oh why are people buying property at this time? Some people are running off to Tucson Arizona. If you want to look at Arizona here are a couple of places to look at. If anything, Tucson is a much better place than Phoneix and better priced. Take a look at our sponsor:


If you want to understand the market you definitely want to submit a below market bid and make the seller work with you, you the buyer are in power. So if you decide to buy in Tucson Arizona, make sure you do your research. The market in Arizona isn't exactly hot so proceed with caution.

Take a long and hard look at the above chart. In the last four years we see a frightening jump in the number of subprime originations. In fact, in 2005 and 2006 over 25% of all loan originations were in the sub-prime market. You say to yourself so what? What does this have to do with the market? If you aggregate the data from 2004-2006 we are talking about $1.9 trillion subprime originations in only three years. Given that the MBA predicts that subprime borrowers will default at a ratio of 1 to 5 this puts $380 billion vaporizing into thin air in the upcoming two years. To put this into perspective this is about as much as the war in Iraq has cost the U.S. tax payer in the last three years.

Again, the point being is that a large number of these loans will reset this year and next. In addition, let us not forget the amount of money flying around in the secondary markets and easy credit markets. The California Equity Giants™ that took out HELOC or did cash-out refinances only to blow their money on consumer goods and Chinese imported knick-knacks have kept the economy alive. How do we know this? Well another study issued by the Fed discusses that homeownership is at a historical high yet equity in homes is at a historical low. How can this be with the massive appreciation in the last few years? Again, the Metallic Home ATM™ which was slapped onto each homeowners home gave them unprecedented access to easy equity and ultimately made home owners their very own credit agency. This false sense of money in essence gave each homeowner enough rope to hang themselves yet keep the economy going; they could either enjoy the relatively nice cushion they were building up or tap into the oil well which was neatly nestled in their home equity.

Beside the CPI numbers being a hoax, we all know that prices of many things have been going up in the last decade. Regardless of what the Bureau of Labor and Statistics would lead you to believe things are more expensive, a lot more expenisve (why is there a housing bubble blog and people reading these articles if prices weren't so ridiculous?). Just go to your local grocery store or go try and buy a new model car. Yes, 1984 is alive and well and those that point these things out are labeled conspiracy nuts and paranoid but just test the numbers in reality and you will see what is going on in Wonderland. This directly relates to housing; homeowners were given this inflated false sense of wealth and owners went out spending. It is the main reason our economy isn’t in a full fledged recession. UCLA conducted a study and found that real estate and residential housing accounted either directly or indirectly for 40% of the growth of the Californian economy in the last four years. Yes, you can say we are co-dependent on real estate.

This was all well and good but we are reaching a critical mass where the musical chairs are running out. Now, buyers are second guessing slaving themselves away for a 800 square foot box in the middle of EquityVille because these places are becoming nice boxes in dustbowl city. Before the incentive could have been a 10% increase in equity but we are trending down faster than Marion Jones so appreciation is no longer a reason to buy. No investors are purchasing residential housing in California for either rental income or appreciation because it would be a losing proposition; it is like chasing your blackjack losses in Vegas with good money. The good money is being sidelined and those shady mortgage industry syndicates are blowing up one by one Mortgage lenders implode

In a way I feel sorry for the buyers in the subprime market; many stories that I know of personally where folks are offered teaser rates and seduced into homes. Unfortunately these folks are screwed on multiple fronts. First, they are taken for a ride with a deceptive intro rate. These rates reset in one or two years giving the illusion of an affordable property. Second, the rates are astronomically high because after the rate resets these folks went stated income for the large part and then what happens? Do you remember the game Mortal Kombat where after defeating your opponent you ripped his head off or some grotesque act of kicking someone when they were down? Well this is what will happen to many subprime buyers. Only difference here is that the fatality won’t be instant but will be a death by a thousand mortgage payments.

January 14, 2007

Real Homes of Genius: South Gate home at $397,000 – Reduced from $475,000.

Today we salute South Gate for the Sunday Dr. Housing Bubble real homes of genius award. Yes, even though the above house is only 796 square feet and is 2 bedrooms and 1 bath, it is full of eager home buyer potential. So much potential that it has been on the market for 138 days. These folks have so much demand that they have reduced the price as follows:

Price Reduced: 09/22/06 -- $475,000 to $463,000
Price Increased: 10/17/06 -- $463,000 to $475,000
Price Reduced: 12/04/06 -- $475,000 to $449,000
Price Reduced: 01/12/07 -- $449,000 to $439,000
Price Reduced: 01/13/07 -- $439,000 to $397,000

Too much demand in September that they bumped up the price for Christmas shoppin. However after that, a nice $78,000 drop in a few months. I’m sure they’ve dropped it as such for the addition of more bars to the front door. But surely Zillow is correct when they assess this home at $434,000 no? Well let us look at the irony of Zillow:

First, Zillow gives you a Zestimate of $434,000 and in the same page, you can pull up the previous sales data. The last time this home sold was in 1999 for a whopping $142,000. These aspiring Donald Trump moguls wanted to pocket $333,000 in 7 years!

Ah yes, we salute you South Gate for being a real warrior and genius of housing.

January 11, 2007

Real Homes of Genius: $450,000 3/2 Home in Compton? Yes folks, Smoking Housing Bubble Peyote Will Make You See Things Like This!

Sometimes you just have to laugh at the rampant speculation in Southern California. The above sample is just one of thousands of overpriced homes in Southern California that have benefited simply by being in the Golden State. Forget simple rules such as quality of area, good schools, and growing neighborhoods we are living in a new paradigm! So what if Southern California spans 200 miles to the east and 200 miles to the south, as long as you are in this bull’s-eye you are a champion. Even better if you are in Los Angeles County, Orange County, or San Diego County. It is a thing to witness this unbelievable bubble. If you run a simple query about how much this home would rent for in the area you get the following:

I’ve highlighted the obvious outlier here because this is probably someone that purchased at the top and is trying to recoup some money via renting. As you can see though, this house would probably rent for $1,100 to $1,300 a month. Let us put on our housing math hats and run the numbers for a second. We will assume that someone will buy this place for $450,000 with 20 percent down:

20 percent down = $90,000
PITI on $360,000 at 6.25% = $2,216
Taxes at 1% = $375 a month

Total monthly caring cost =$2,591

Even after tax savings this is way off base by over $1,000 a month; a spread ratio of over 100 percent! Given that owning a home will always cost more than buying but there are many places in the U.S. where you can purchase a home in a metro area for $125,000 to $150,000 and rent it out for $1,250 a month.

Another case example of the true Real Genius of Housing. We salute you Compton for making us proud via voodoo finance math.

January 10, 2007

The 4 Horsemen of the Housing Apocalypse.

Yes, the title is rather dramatic but we will see some major shifts in housing this year. The cracks are already forming and it is only a matter of time that things are forced to adjust. The Fed, bankers, lenders, realtors, and all those involved in the housing syndicate are not going to shake this thing up so it will have to be an outside force.

What do you think about the chart above? When do you think these things will play out in 2007?

I know everything may seem gloomy but why not take a trip to Paris? Discount Paris Hotels Might as well get out of here and have some fun. Make a reservation for the summer in Paris and escape with Discount Paris Hotels the housing debacle here in the states.

Of course the French are also having a housing bubble. Paris is one of the top without a Discount Paris Hotels bubble cities in the world but at least the wine will taste good.

Today's Illegal Immigrants, Are Tomorrow's House Buyers.

Flipper Nation
Episode 3: The Flippin' Fight

There's more where this came from at: FlipperNation.com

If you cannot view this video, you can check it out at YouTube instead.

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January 03, 2007

Is Housing the Next Rocky Balboa? Only 2007 Will Tell…

First, I want to wish everyone a very happy New Year and hope that 2007 is a prosperous year for you and your family in terms of health and success. I apologize for not posting but I have been busy and just got back from a multi-state trip that again highlights the insanity that is currently happening in housing. As every housing blogger is licking their chops as if a savory Kobe steak is being slowly cooked, we await 2007 with great anticipation. Why is 2007 such an important year? Well there are three main reasons:

1. The large number of adjustable mortgages and sub-prime mortgages resetting.

2. The slowdown in appreciation from zero to negative numbers. Some areas approaching the dreaded “double-digit” zone.

3. The massive supply of new buildings and relisted properties this spring and summer (projected). How is this projected? Well simple if you think about it. If sales massively decreased in 2006 (www.dqnews.com) and many took their houses off the market in the fall and winter, guess when many will begin re-listing their homes? As of now it is too soon to tell but we will follow the inventory numbers closely. Late February will be a good gauge of how steep market inventory will rise.

So why am I comparing housing to the new Rocky Balboa? For those of you who haven’t seen the movie, it is about Rocky (duh) and his ability to step back into the ring even though many have written him off due to age. Of course Rocky per his usual style has enough gas to give it another go. Do not underestimate the housing market; it has been punched in the face and it is still standing. But 2007 for reasons 1,2, and 3 above will be the gut shot that will test the resolve of the market. Any realistic person with a Paris Hilton sense of finance can do the basic math; housing is astronomically overpriced…and it’s Hot! Yet those of us that feel housing will fall 10 to 15 percent this year are touted as extremist and bubbleheads. You doubt this? We’ve been nominated for the first ever Real Estate Blogging Awards by Housing Wire at REBA Awards. You can vote if you like by following the link. And guess what category this blog falls under? We’ve been labeled “Most Extreme” yet everything I write about is common sense and based on financial canons that date beyond our era. Somehow I feel those reading this blog think that we are that designated driver trying to take away the keys from our overly zealous drunken friend; who believes he can drive even though he is wearing his sister’s thong on his head and chanting Enya songs at the top of his American Idol reject voice.

But again, do not dismiss housing. I think we will see a very interesting year. 2006 if anything was a slow ride to the top. Inventory increased, sales fell, and appreciation stagnated as a Matador sticks a bull with another sword. Those of us in the bear camp realize that this cannot go on into perpetuity. As I previously mentioned, I took a trip to Arizona and New Mexico. The sprawling new subdivisions are something to see. As you enter the city of Goodyear Arizona you suddenly realize what desert living is all about. Massive 3/2 homes pop out like credit cards during the Christmas season at your local mall. But you begin to realize that homes need a basis of support and this translates to jobs in the nearby economy. As I browsed through the local newspapers, the jobs listed did not compute to the price of housing – doesn’t really matter since a large portion of homes in Arizona were purchased by investors; just look at Casa Grande or communities that completely depend on California State Equity Giants (CSEG™). You need only look at the Mortgage Bankers Association stats to find out where billions of vanilla equity extract went.

As I spent sometime in New Mexico, in particular Las Cruces and Albuquerque, and you realize as a gradient fades in color so does the equity runoff. As a halo effect, the equity ran far into the heart of New Mexico. Again, not to the extent of overbuilt Arizona but the same builders, Toll, Centex, and DR Horton you see the same names in the game.

Tying this altogether like a well wrapped Christmas gift that I’m sure all you naughty boys and girls received, we realize that the market is at a crucial turning point. You either set a new paradigm of outrageously priced homes in coastal regions financed by new exotic financing vehicles or you trend back down to past figures. We all know that certain areas will always have a premium but the massive number of suburbs that benefited from the boom such as Compton, Inglewood, Lynwood, South Gate, Huntington Park, and others that you can map on Google, you will realize that we are at an extraordinary time in history. We will see if housing like Rocky gives it another go in 2007 and puts up a valiant fight or like Tyson squanders 200 million in cheap booze and women and hangs up his boxing gloves.