April 16, 2007

Real Homes of Genius: Today We Salute El Monte. 624 Square Feet for $440,000.

In Spanish El Monte means the Mount, or the mount of debt you’ll get yourself into should you purchase this Real Home of Genius. As you can see from this glorious structure modeled after the Pantheon in Rome, you will immerse yourself in all 2 bedrooms and 1 bath in this 624 square foot palace. Why build Taj Mahal when you can have this for nearly half a million dollars? Everything is updated on this place including the palm tree miraculously growing out of your concrete porch. This place also has a new toilet so after receiving your new mortgage payment from Wells Fargo, you’ll have a nice place to pay homage to the porcelain goddess.

But surely the sellers paid large cash for this place and that is why they are asking for this price:

Sale History

01/09/2002: $170,000

I guess that theory is out the window. So what are these sellers expecting to pocket with this sale? Let us run the numbers:

Assuming 6% sales cost: $440,000 - 6% - $170,000 = $247,360

This of course relying on the fact they still have a balance of $170,000 but we’re sure that is a lot less (unless they tapped equity out like the Lord of the Dance folks). So they are looking to score $49,400 per year in growth in a neighborhood where the median income is $48,000. Again we find another place where why would you work when simply living in your home makes more money than a job. Once a thing of infomercial lore, now you really can live in your palace and not work since equity will grow faster than your 9 to 5. We can understand why the lying scoundrels of housing have been pumping up the housing machine for seven years.

Today we Salute you El Monte with our Real Homes of Genius Award.


Anonymous said...

Wow, this one really induces cognitive dissonance for me.

I look at that picture and intuitively know it's not worth $440k. Heck, I could build a playhouse in the backyard (complete with a palm tree from Costco) for much less....

But seriously, I ask myself, how much would I be willing to pay for that hovel / lean-to? $400K? NOPE. $300K? Not a snowball's chance. $200k? Getting warmer, but keep going. $150k? Maybe....

But then I run into the problem that I wouldn't even want to live in it, so maybe if I could rent it out? But would rentals in the area support $1,500 a month rent? Somehow I doubt it. What about $100k purchase, and rent for $1k a month? I suspect we're getting closer....

But then I ask myself, do I really want to be a slum-lord with a property in El Monte? Eh, no thanks... Would it make a good "starter" home? Maybe, but the buyer would get upside down, so best-case scenario is it would not only be their "starter" home, but their "ender" home, i.e. stuck in it for quite sometime.

So in essence, that property is essentially worthless (to me, and I suspect most others, AT THAT PRICE): If I were buy, there's absolutely no speculative value left inside, so little hope for a double-digit run-up in value (ALA the housing boom) that justified such a price back in 2002-2004.

So overall, it's "no sale" for me....

Joe said...


Subprime article.

Mr Vincent said...

El Monte is a dive. It's the ugly sister of desirable Arcadia to the north.

This is a 100k home at best.

sed said...

Palm tree is a nice touch, wonder how the foundation's holding up.

I'm with Anonymous, this house has zero value for me. If one WOULD want to live there, and for a stable low or lower-mid income community to form, that house should sell for no more than about $85,000, if that.

The thing about the RHOGs it that there are oceans of them, endlessly sprawling through what was once a beautiful valley. The worst thing that happened to southern California was the post WWII GI bill. The second worst was the expansion of publicly held builders.

Yet, I continue to see managers of capital fund companies on Bloomberg confidently saying the housing market will be down by 5 or maybe 10 percent and be on the rebound in 2008. These are guys who manage billions of dollars in assets, so they can't be THAT out of it. Or can they?

I noticed that Countrywide and Fremont stocks were nicely up today and I scratch my head wondering who would want to sink investment money in them.

Are we the chicken littles or are they the ostriches?

lendingmaestro said...


Yes they can. There has been nearly zero media coverage on mortgage-backed securities except for recently. The problem is that the investors have no contact with the actual borrowers, and a different institution services the loan.

Now that I work for one of the largest mortgage banks in the US, I am amazed at how little mortgages were discussed/taught in college. The vast majority of college professors, students, financial advisors, and financial reporters have no idea how the mortgage industry works. It is a niche area of finance that is not typically covered in finance programs, and they only way you learn is to work in it. That is because Real Estate is not really an investment, and it's definirely no taught across the board. How many financial planners have told their clients to buy rental properties!?!?

I on the other hand talk to people everyday that are prime borrower's on the verge of mental breakdown. People who got 5/1 4.75% interest only arms. This seemed like a good loan at the time except they are now at 90% CLTV from 80% CLTV 4 1/2 years ago. No negative amortization, just deflationary prices.

The mortgage industry is in for a colossal breakdown, mark my words. I've already liquidated all my companies stock and eliminated it from my retirement accounts

just be ready

sed said...

Thanks LendingMaestro. I also find your other posts quite informative from an insider's perspective, much appreciated.

I just saw this link on Drudge:

"Mortgage defaults in California near decade high"
By Jim Christie

SAN FRANCISCO (Reuters) - The number of mortgage default notices sent to California homeowners last quarter rose to its highest in nearly 10 years as home prices stagnated and rates on adjustable loans pushed higher, a report released on Monday said.

Mortgage lenders filed 46,760 notices of default from January through March, marking an increase of 23.1 percent from the previous quarter and 148 percent from the year-earlier period, according to a report by DataQuick Information Systems, a real estate information service.

The first quarter's default level was the highest for the most populous U.S. state since the second quarter of 1997. It came amid a sharp rise in defaults on mortgages held by subprime borrowers, or borrowers with blemished credit, across the United States. "

The article goes in with more details if interested.

Also, in following AllForeclosures.com from time to time, I noticed that for my zipcode, 91711, a very upper middle class town, quite a few homes coming down. Last week there was 1 foreclosure and a bunch of pre-foreclosures. 8 of those became foreclosures as of yesterday. There are an additional 38 pre-fores awaiting and more bankrupties. It's not a big town.

Anonymous said...

"the worst thing that happened to Southern California was the post WWII GI Bill"

You're an elitist asshole.

The definition of what is an acceptable home for the middle class has changed since the post WWII years and the country has grown considerably richer. Much of the reason for this growth in wealth is attributable to the GI Bill.

sed said...

Thanks, you're the first person on this blog to use obscenity. You're a quality guy who appreciates democratic discourse.

It is possible to disagree with people without resorting to trash talk, but evidently not in your case.

The reason I brought it up was that it ushered in an era of poorly planned, massive sprawl that has hooked us on massive commutes, addiction to foreign oil, destruction of the environment and in general, cookie cutter communities.

Compare that with the central sections of many of the towns in the region, which have individualistic housing at all economic levels, large two story houses next to smaller bungalows. It was a way of life.

However, I respect your wishes to live in a massively overcrowded, overpopulated, mall infested wasteland.

Corey said...

Inflation lower than expected. Are rate cuts close? http://infohype.blogspot.com

lendingmaestro said...

I seriously doubt there will be a rate cut. Remember, the FED's sole job is to create and implement monetary policy. They do this by either adjusting the fed funds rate to curb inflation/stimulate inflation, or adjusting the money supply through the sale or purchase of bonds.

Housing has never been an area of expertise for the FED however since housing has been such a fuel component of GDP they can't ignore it. The sole reason why the haven't raised rates is because of housing uncertainty. They will not however risk inflation just to help homeowners refinance.

lendingmaestro said...

In response to this comment...

"The definition of what is an acceptable home for the middle class has changed since the post WWII years and the country has grown considerably richer. Much of the reason for this growth in wealth is attributable to the GI Bill."

You've hit the nail on the head, possibly without realizing it. Americans have become accustomed to living well beyond their means. Please do not confuse leveraged financial positions with wealth. The rich get richer because they save their money and invest wisely--paying off debt and even being frugal sometimes. The vast majority of the middle-class has become the "hollywood" class and spent beyond their means to keep up with the joneses. Our society is far removed from the subsistence living in other countries. We spend spend spend, and I can't see how any of it is directly related or even corellated with a G.I. Bill

de profundis said...

Dr. Housing Bubble and others:

my faith is shaking. The February 27 correction, which was looking like a classic end-of-cycle correction, has proven to be just another fit followed by another bull start--indeed, had I taken 12,100 as an entry point instead of trading glances with QID, I could have realized a 6% gain today. The "Broadening top" just keeps broadening. And then I look to these housing prices nationwide, where even homes in the crack-infested, murder-ridden inner city of my hometown sell for over 200. Houses in the upstate NY are going for a median of 330, well beyond the reach of any home-"owner".

With prices this inflated, it is beginning to look to me like I am going to be stuck renting the rest of my life, even should I chose another decade of self-denial and savings. Even looking out on the broader economy, M3 is out-of-control. But not a goddamn soul in the MSM wants to see Alan Greenspan horsewhipped for the ARM con-of-the-decade move.

When New Century got rightly curb-stomped into delisting, I just about set off fireworks. But now its brethen have bought some extra life, and I am looking lost in a market of optimism with almost no points of entry--will I be consigned to life of hoarding silver and counting ammunition, desparately awaiting approval for asylum on Ayn Rand Island?

Forgive my despair, but these chickens are not coming home to roost and my middle-class income simply won't reconcile with the credit-realized middle-class dreams I see around me.

Dr Housing Bubble said...


While I think many of us recoil of the thought of someone being kicked out on the street or losing their job, we also realize that these folks are partly responsible for the bubble growing - after all they did sign the contract. However the other side of the coin is that swindlers existed to fuel these flames; the drug dealer and abuser both create the system.

The LA Times had an article this Sunday about a family with a $100,000 yearly income struggling to "make it." They even mentioned that their kids had to wear hand-me downs from neighbors. What was shocking is the amount of debt they carry:

$213,000 first mortgage
$92,000 second mortgage
$45,000 student loan
$26,000 credit card debt

They mention that $3,500 a month went to service the debt. What did they use the 2nd for? A home entertainment center and vacations. Where most feel a gripe is the illusion of debt as wealth. They are spending future income for present gratification.

Although I believe there is a a general sense of Schadenfreude brewing in our society, that is a pleasure taken from someone else's misfortune, most people try to do their best with what is available to them. I mean who wants to see their wealth decline? But the system is rigged and unfortunately this massive credit orgy will collapse. The blame game is beginning and you can see on many housing and financial blogs finger pointing starting to happen. This is characteristic of the distress stage of a bubble. In this stage, folks know the fundamentals are out of line but want to keep believing because to lose faith would mean to lose your wealth; after all who would want to buy your home if they knew it would drop 20% the next year? The next stage is crisis followed by crash. It will happen because we are massively in debt on a personal level like the LA Times family but also on a national level. The war is costly and inflation is extremely high; you can look at the CPI but this is ridiculous since it doesn't factor in true homeownership, health care, education, or the majority of thing we spend the bulk of our funds on.

Like I've predicted many times, Q3 and Q4 the market will start to tremble. 2008 and 2009 the market will go into crisis and crash mode. Did you see the DataQuick foreclosure report for Q1? Foreclosures are up an astounding 140%+ across the state. That is not a sign of a recovering housing market.

Anonymous said...

138% Percent Jump in Orange County Default Notices


Anonymous said...

Fear and greed


The North Coast said...

I have to (reluctantly) agree with the commenter who stated that "the worst thing to happen to SoCal since WW2 was the GI bill".

I believe that the bill, and the mania of suburbanization and corresponding proliferation of small junk homes built to last a 30 year mortgage, together are the worst things ever to happen to the country as a whole. The VA and FHA essentially financed, through low cost loans available only for new ticky-tacky homes in sprawling auto suburbs, the massive flight from the cities that took place in the 50s and 60s. My parents were among that wave- they decamped St. Louis, where they could not afford a traditional older home, for a brand-new 'burb of cheaply built homes in unincorporated IL, across the river.

Can you help but notice that the crapola that was built for workers on GI and FHA loans is the ugliest, tackiest, saddest crap ever built? I have lived in Chicago now for 20 years, and it's the same as St. Louis and SoCal and everywhere else- the suburbs that were set down all of a piece immediately following WW2 are devolving to slumhood very quickly, and they won't come back as the old cities are.

You look at stuff in your locale that was built in the 20s, and perhaps the neighborhood has gone to seed, but it will come back because the stuff built is so good, and so goodlooking. Not so with midcentury modern crapola. Whether it's a fake-stucco SoCal box priced at $400K or a ranchette in a rapidly slumifying southwest Chicago burb, this crap is only good for firewood. It is not recyclable.

I look at the thousands of miles of prefab ticky tacky across the land, and I could cry for the beautiful old cities in CA, IL, MI, OH, almost everywhere, that were decimated to build this garbage, that is now completely obsolete in less than fifty years. We are now rescuing our old cities in a nick of time.