We’ve all seen this story before. Insanity is when you do the same thing over and over and expect a different result. Bernanke artificially suppressed interest rates in order to create another housing boom, just as his buddy Greenspan did from 2002 through 2005. But Bennie doesn’t have complete control over long-term rates. The 125 basis point increase in mortgage rates in the last two months, along with the Blackrock/Wall Street rent to own scheme which has driven prices up 13% nationally and up more than 20% in the previous bubble markets, has driven the monthly payment required to buy the median priced home up by 40% in a matter of weeks.
The Bernanke/Blackrock/NAR/MSM housing recovery storyline has been built upon fraud and deception. The Wall Street banks have purposely held foreclosed homes off the market in order to create a fake housing shortage. At the same time, Bernanke has provided these same Wall Street banks with billions of free money to buy up the foreclosed homes on the market in order to turn them into rental units. The Wall Street shysters have no plans to be long-term landlords. Their game is to drive prices skyward and then dump these rent toown houses on a greater fool. The plan is clearly revealed in the chart below.
A real housing recovery would be driven by first time home buyers that would make up 40% of home buyers in a health market. They currently account for only 28% of home sales. Considering the real median household income of first time home buyers is 15% below the level of 2000, there is no chance this student loan indebted cohort is going to lead the charge. There can be no real housing recovery without rising incomes.
The powers that be have tried to reproduce the housing bubble mania that blew up the financial system in the first place. The story below shows that there are an inordinate number of clueless dupes in California and the old bubble markets of Phoenix and Vegas. They are addicted to gambling and losing it all. We’ve got flipper shows back on cable. We have adjustable rate mortgages making a comeback. We have Wall Street bundling questionable mortgages again. We have low down payment mortgages beginning to proliferate. We have a stock market that is 50% overvalued, margin debt at record highs, rising interest rates, and an economy in recession. No this isn’t 2007. It is 2013 and we’re about to have deja vu all over again.
The Southern California flipper epidemic: A market in the middle of crosswinds. What a $2+ million flip in Arcadia will get you.
The $2 million Arcadia flip
This is an interesting flip in Arcadia:
521 VAQUERO Rd, Arcadia, CA 91007
This is a very nice home in the city of Arcadia. Arcadia is a premium market although nothing like Santa Monica or La Jolla. So to command celebrity like prices is somewhat odd for a 4 bedroom house. It is a big 4 bedroom listed at 3,699 square feet.
I mapped this place and it is actually very close to the 210:
For $2.2 million you might expect to be further away from a major freeway (at least it isn’t the 405 I suppose). Another thing that caught my attention is the activity on this property. There have been reports that the average length of time a person will stay in a property is 7 years. So when I hear people whine that “they can’t buy to set roots in California” I have to grimace because these are the people that a few years down the road “need” a move up home since 2,000 square feet is no longer enough for a 10 pound toddler. In other words, people have this nostalgic view that they will sit in their property for 30 years smoking a pipe when the facts fly directly in the face of this (plus, those that are crying that they missed this run-up are essentially saying they are speculators). You don’t make any money until you sell therefore you are contradicting the emotional pleas that you cannot afford a place to settle down. So back to this flip, let us look at the action:
Interesting action here. The place has sold 5 times in the last 14 years and has been foreclosed on once (so not counting the foreclosure, we are looking at an average holding period of 3 years). The big winners here are the person that bought in 1999 and sold in 2004 and the person that bought in 2013 and flipped it in June for nearly double the price (from $991,000 to $1,820,000). I imagine this is where most of the upgrades also came into play.
But look at the current action. Someone that just closed in June is now trying to sell this place for $2.2 million! The place was only “owned” for one month before trying to offload it to the next buyer for $468,000 more. What could have been done in one month to justify this jump? These examples drive at the core of the current mania in California and other high priced metro areas.
In this zip code of Arcadia, the median household income is around $70,000 (however, about 50 percent are renters in this zip code). The median price of homes sold in this zip code is $1.2 million (up 38 percent from last year). Inventory in Arcadia has also doubled since the low reached in Q1 of 2013. Rising prices and rising inventory signal some sort of crosswinds (that is, something will have to give and momentum is slowing down).
Welcome to home flipping California style. This will be an interesting flip to track at a tipping point in the market.