March 22, 2007

Real Homes of Genius: Today we Salute you Compton. $321,000 for 594 Square Feet! Can You Really Get Two Bedrooms Into That Space?


The REOs are hitting the market and we have a wonderful example in Compton California, the place of great schools and family security. When you think of a home with a white picket fence and Lassie running around doesn’t it conjure up images of Compton? Well today we have a flip or sub-prime that went bad and now the bank has to unload it. But lucky for the bank they have a magnificent mansion, at 594 square feet with 2 bedrooms and 1 bath, you'll have plenty of room to entertain so I'm sure bidders are fighting left and right for this place. As you can see from the picture through the steel fence, there appears to be a garage but the only thing I imagine fitting in there is a Toyota Echo or a Kawasaki motorcycle. Don’t you feel like we are taking a stroll down Rodeo Drive?

The home was originally listed at $330,000 but recently was lowered to $321,000. Maybe this is a fair price considering the previous sales data. Well let us take a look:

Sale History & Tax Info Sale History

02/15/2007: $283,500
05/10/2006: $338,000
09/23/2004: $197,000

In this game of life, we have one winner (the owner in 2004), and two losers the seller in 2006 and the bank who apparently thinks they can get peak 2006 prices. We in bubblelandia know that this ain’t going to happen. No Greenpoint, DiTech, or New Century to fund your housing lunacy. Amazing how the bank using their infinite wisdom looked at previous sales data and figured it would get the peak price simply because someone purchased this home in the past for the same amount. Nope. This place if you go on Craigslist would rent for $975 to $1050 a month. And considering appreciation is going down for the immediate future why in the world would you buy this place at that price? Even the $197,000 seems overpriced for this area and this home. From an investors standpoint this makes no sense at all. But what is the typical family income in the area?

Income
Median Mortgage Debt: $35,094
Average/Household: $45,265
Per Capita: $11,534

At $45,000 median household income people are netting $2,400 to $2,600 a month. Let us run the numbers for a mortgage with 20% down on this place:

Principle and Interest on a 30 year fixed at 6.25% = $1,581.16
Taxes = $333 per month
Downpayment = $64,200

Total Monthly Payment = $1,914

So this family would be spending 73 to 80 percent of their income on housing; and this is considering that they have $64,200 to put down. Oh yes, we housing bears were off base for calling Southern California a housing bubble.

Today we salute you Compton with our Real Homs of Genius Award.

21 Comments:

Anonymous said...

That first family could have moved to my town in Ohio and moved all their contents, flew the entire family first class, bought 2 new $25 K cars, bought a 4 bedroom house 4 times the size with a yard 10 times the size and a 2 car garage, and still have 30 K in their pocket.
And that is assuming they walked away with 200K.
Debt free, 35 K banked. There are not many good jobs here, but you don't need a good one with all of you bills paid already.

Dr Housing Bubble said...

anon:

That is definitely the ideal situation. Leave with your California equity and move to a low-cost living state. This is for folks that purchased their homes prior to this bubble run-up. There is a book, Life 2.0 by Rich Karlgaard about people leaving high-cost states for other parts of the US. Interesting read that strikes directly to what is going on in many high priced areas.

Yes, you make a higher income but everything else eats away at this. I would say to live in SoCal comfortably you need at a minimum $100,000+ a year. Many people across the country may look at this as ridiculous but housing, funding your retirement, healthcare, and automotive cost eat away a large portion of your income.

Anonymous said...

Dr. Housing Bubble,
I enjoy reading your commentaries on this market but have noticed your "real homes of genius: today we salute you" entries focus only on lower income areas. What about mid to higher income areas. Do you have any information?

GeneralVanNuys said...

Damn! Now you've topped Pacoima! "Real Homes of Genius" needs a theme song. Best thing on the web. Thanks, Doc.

Anonymous said...

This is the funniest thing I have seen in a long time! Nothing makes me happier than someone exposing the housing scam thats been going on for years fueled by people who couldnt afford houses in the first place! Keep up the good work!!!

Dr Housing Bubble said...

anons:

I think highlighting these areas, especially for Southern California natives gives you a gut check to how out of control prices are. Later, I may focus on middle to upper-class areas but this is the canary in the mine. Keep in mind when they calculate median county prices these places are included so they do affect the larger picture.

GeneralVanNuys:

Thanks for the comments. Currently I'm thinking Dave Matthews' Crash Into Me is a good theme song.

sed said...

One common structural element to all these homes of genius is the "large" living room window to gaze out upon the lovely vistas and the neighbors' landscaping.

Dr. BH, I don't know why you are complaining about the size of the garage, it looks to be at least 30% as wide as the living area.

sed said...

Sorry to post again on this, but on second look, I wonder....could this actually be a detached two-car garage converted to a "home"?

PS...that interstitial ad is a pest

Dr Housing Bubble said...

sed,

You are absolutely right. I should put on my rosy colored glasses and look at the garage as a future bedroom.

We can knock down the walls and make it a game room. Or we can get creative, put a ping pong table for vast amounts of family fun. After looking at it that way, maybe $321,000 is a steal. Let me get my Rolodex and call New Century.

sed said...

Living 2.0, take me back to Tulsa...

http://www.mcgrawdavissonstewart.com/mhtlistings/703246index.html?s_Listagent=&s_ADDR=&s_BedroomCnt=&s_SqFootage1=&s_SqFootage2=&OfficeListingsPage=2&s_Value=0&s_school=&s_City=&s_Type=&s_MLSNbr=&s_yearblt1=&s_yearblt2=&s_LPRICEA1=300000&s_LPRICEA2=350000&s_subdivision=&s_LivingAreas=

TM Lutas said...

I have 4 bedrooms, 2.5 baths, a basement, a fireplace, a pool, a deck, and a 2 car garage just across the Indiana border from Chicago. My house is valued slightly less than the asking price.

Oh, and it's a reasonably safe place to live where nobody has security grills.

Oh well, we didn't bubble up so we're likely not to be hit with negative equity.

Corey said...

I've got 2600 square feet for sale in Wisconsin for $229,000 if you're interested. I'm predicting today's existing home sales report will be 100,000 less than expected. Kiplinger says the Fed will ignore housing all year. More here: http://infohype.blogspot.com

NonCoastal Dweller said...

Californians should stay home. You created this mess, you need to clean it up. When you unload your bubble-equity and move to the rest of the US, you are simply exporting your bubblemania to the rest of the country. Do you think we can compete with Californians who think nothing of dropping $400,000 on a 500 sq ft garage for chrissakes?

Play your games, trade your houses amongst yourselves, but don't Californicate the rest of the nation's housing prices while you are at it. We don't want your pollution. We don't want your traffic. And we sure as heck don't want your absurd housing prices.

Dr Housing Bubble said...

Tm:

A place like that in a good area would fetch $900,000. Be happy that you aren't in a market with phantom equity gains.

Corey:

The sales report is out and there was a jump. So this is good news for the markets however median prices are negative year-over-year. Here we go again with a dead cat bounce.

NonCoastal Dweller:

What state are you from? From your comment it sounds like you have a negative view of California Equity Giants. I can only speak for myself but these high prices don't bode well for many people here in the state. In addition, only about 54% of people in California own homes, much less than the 70% nationwide stats. This impacts everyone across the country. Fortunately folks are free to go where they want to go and pursue careers anywhere in the world.

Keep in mind that there had to be a seller in your state to accept the fat cashier check from a California buyer. It takes two to tango.

kph said...

I'm a recent repeat reader of your site and must say I love what you're doing here. RHOG is pure genius indeed.

It's hard to believe that the cheapest houses in LA cost more than my house in Houston. It's also hard to imagine who would pay that much to live in Compton. Have people heard of NWA?

Anonymous said...

I am a California native living in the Southeast. I currently pay about 7% of my gross income for PITI ( professional job , about 275 K per year). I can't believe what is happening out there. Ca used to be a great place to live. It is now one giant TURD ( the sum of many POS). There are still great areas for the RICH, welfare state for the immigrants and poor, but if you are working class ( OK I'm not anymore but my folks who raised me in Ca are), it's about time to GET OUT OF DODGE!! I'm waiting for my retirement condo in Carmel, Ca to drop to $400,000 or less before I jump into this market!!

Kevin said...

With the recent sub-prime blowout, lenders are now forced to tighten up. The days of buying homes with no money down are now over.

That means that in order for someone to purchase a median priced home here in Southern California (approximately $600,000) with say a 10% down payment, they would require a $60,000 as a down payment. Guess what? There aren't all that many people with $60,000 in the bank for a down payment. This is very significant.

That means that we have now just entered a new stage in this deflating bubble where there are a whole lot less buyers. This is now causing the next downleg in home prices. Just wait and see in the months ahead. Here comes phase II.

Dr Housing Bubble said...

Kph,

Welcome on board. I think the fascination with debt started long ago. But never have we been in such massive debt. Not only are we over extending ourselves with homes, cars, credit cards, but even our nation's trade deficit is at a record. Through and through we are a big time debtor.

Anon,

Carmel is great. A gem of the west. Glad to hear you made it out. Definitely sounds like a play out of Life 2.0. Yet many of us love SoCal. Most of the recent gripe is directed toward housing. I'd be willing to move at a later stage in my career. The US is much larger than simply the coastal regions.

Kevin,

That is correct. The doors only closed a few weeks ago. Folks are still on their way to the party only to realize the booze is out. Time for the hangover to subside.

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