SEE WHAT $600,000 GETS YOU IN LOONEY LOS ANGELES

No bubble here. This is completely rational. QE had nothing to do with this. ZIRP had nothing to do with this. Wall Street hedge funds had nothing to do with this. They ain’t making more land. Home prices never fall. Paying $600,000 for a 1,200 square foot dump in the paradise of Pasadena is a brilliant investment. What could possibly go wrong? Some people never learn.

Guest Post by Doctor Housing Bubble

We have an astute audience that reaches beyond the confines of the 405 and 10 freeways. I know it is hard for some readers to see beyond PCH but it is true, the U.S. is an expansive and far reaching country. It is hard for some readers to grasp the endless boom and bust cycles of Southern California real estate. So today, we’ll take a trip to three fairly popular cities and see what we can get with a $600,000 to $650,000 budget. I’d be interested to see what those outside of the area and those within it have to say about these properties and their current prices. What you will find is that inventory is growing and house horny buyers are itching to dive into housing even if it means taking on ARMs once again. Those that bought a few years ago will now find it difficult if not impossible to purchase today. Has the economy so radically changed to justify 20 to 30 percent price increases within one year? This market is still being driven by hot money although it is starting to cool off. Visually seeing what we can get for $600,000 to $650,000 in Pasadena, Arcadia, and Torrance might give you a good idea of what the current market is like. For those outside of the area, welcome to SoCal housing!

 

A trip into three L.A. County cities

It is important to note before diving into these examples that most traditional buyers are not entering the housing market with big down payments. In fact, here in SoCal, we have ARM usage doubling in the last year as households try to stretch their budgets to the maximum potential. It would be useful to note that the 30-year fixed rate mortgage is still hovering near all-time historical lows. The ideal scenario is always bandied about with a 20 percent down payment as if many people have $120,000 laying around to throw into a pre-World War II property.

The facts simply do not show that to be true. You have cash investors buying properties as investments. You have other markets being driven by foreign investment. In the middle of all of this you have traditional buyers stretching their budgets to cram into properties. It is an odd mix that is fully unsustainable. I’ve seen a few booms and busts and this goes back to the 1980s so why are we to expect any different outcome this time especially given the current market outlook?

Let us first look at a property in Pasadena.

pasadena

1024 N Sierra Bonita Ave, Pasadena, CA 91104

3 beds, 2 baths listed at 1,200 square feet

Year built:            1924

List price:             $635,000

A nice property albeit rather small for $635,000. The last sale on this home took place in 2004 for $489,000. It has had some work done in the interior but again, this place was built in 1924 (before the Great Depression). What is interesting is looking at the tax data. In 2004 the place was assessed for tax purposes at $226,183. When it sold, it was then reassessed for $504,981 in 2005. Taxes slowly went up peaking in 2009 at $535,887. Then in 2010, it looks like it was reassessed at $489,000 and remained there until 2013, where it was upped once again to $529,000. If this sells at $635,000 we will have a much higher tax assessment. Of course the government loves nothing more than higher home prices to collect more taxes. You can see how tricky things can get especially with that jump in 2004 from $226,183 to $504,981. Did the joy of living in this house with all public access suddenly get twice as good in one year? Probably not but the tax bill did.

Our next home is in Arcadia.

arcadia

5520 N Santa Anita Ave, Arcadia, CA 91006

3 beds, 2 baths listed at 1,232 square feet

Year built:            1965

List price:             $650,000

This home is slightly newer than the other home being built in 1965. I love that the ad says this place is a “must see home for people that love their privacy.” Of course all other homes are for suckers that hate privacy and want their life an open exhibition to the public. California housing affordability sucks. It has gotten dramatically worse in the last year. Some of these homes are the golden tickets being offloaded by baby boomers onto a market were housing fever is still raging on. This home last sold in 2004 for $400,000. No surprise that we see an assessment jumping from $259,760 to $416,160 from 2004 to 2005.

Let us finally look at our last example on our $600,000 house hunting trip in Torrance.

torrance

2378 W 233rd St, Torrance, CA 90501

3 beds, 2 baths listed at 1,296 square feet

Year built:            1959

List price:             $619,900

This home was built in 1959 and the last sale occurred in 1986 for $100,000. I love how the ad mentions the following:

“Large Private Backyard With Rv Access! Plenty of Room For Your Boat, Jet Ski’s Or Rv. Move In Condition! Welcome Home!”

Caption every word because you are spending $619,900 here. What is the current tax assessment? $158,524. So good luck to the new buyer that will be paying nearly 4 times the amount in taxes as the current owners here.

I assure you that folks with serious cash are not spending their weekends trying to outbid each other here. That is simply the truth. Do you see a couple made up of a lawyer and accountant buying these places? The people I do see buying these properties are house horny buyers simply trying to chase the aspiration of getting a hold of SoCal real estate and justifying that $600,000 and $700,000 is somehow affordable. The Torrance property is likely to be an offloading from a boomer.

It is interesting that when I post articles like this one with actual examples, people try to refute it by saying “well look at the history here, it is clearly going up therefore buying is an easy decision.” But when I respond that they should buy this place and let me know when they close escrow since it is such a no brainer they usually want someone else to take the dive. If you found a great stock that you just “knew” would go up, you would be silly not to buy. The same should be the case with real estate. The problem of course is that at these prices, it is not an easy decision. In fact, it looks like a mini-bubble with a different flavor. With these properties, even with a $120,000 down payment you are looking at a monthly carrying cost of $2,800 to $3,000 for 30 years. Most of those in the industry usually fail to look at the opportunity cost lost by the down payment after 30 years in alternative investments and the net difference between renting and buying. Then again, that is usually how we end up with baby boomers with inadequate retirement accounts living in these million dollar tickets while eating canned tuna to stay afloat. Just because the momentum is up, doesn’t mean it is a good time to buy. You can ask the 7,000,000+ U.S. homeowners that recently faced foreclosure if the “housing always goes up” argument is enough to make housing a great investment no matter the underlying price.

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Realestatepup

My brother lives in Laurel Canyon. As a renter. He lived in San Fran and Pasadena in the past 10+ years in Looney Land. San Fran is no better for real estate prices, perhaps worse. I could never, never, figure out why anyone would pay this much for so little, AND have some of the highest other taxes in the entire country.
Here in Worcester County, MA some areas are crazy, some are getting crazy, and some have always been crazy.
Eseex Count is always crazy. Very few of us can afford a brick 3-story renovated townhome on Newbury St or somewhere in the Back Bay. There are still some kinda-affordable placed closer to Boston, but you really have to look and be patient.
Worcester still tend to be pretty good mix and some good value if you again, have the patience and are not someone who will buy just to buy.
The three houses shown above would sell for about 150-200K in Worcester depending on the neighborhood. That’s it.
Those same 3 homes would sell for 250-300 30 to 40 minutes outside Boston. The oldest home would sell for about 200-250 in a semi-decent area like Roslindale or Hyde Park, 400-500 in Charlestown.
To me, this makes more sense. The closer you live to Boston, the more you pay. Why? Well, you have much better access to “stuff”. What stuff, you ask? Trains, shopping, museums, restaurants, schools, parks, the ocean.
If you live in Pasadena, what are you close to? There is no train to take you into downtown LA. You get to drive the 15 or so miles in a horrendous stop and go traffic. Then, you get to either eat in an upscale LA eatery to try and see and bee seen (plan on $500 buck for lunch), or go to a chain place far off the celebrity luge run. You could try and be cultural, and go to the Museum of Contemporary Art. Maybe you could get a space, or try parking on the street. Good luck.
Basically, I find anyone who lives near or wants to live hear LA is either been there for a really long time (pre 1980) or thinks they are going to be in the entertainment industry with all the other no-talent hacks.
People who want to live in or near Boston also typically are either long-term residents (think pre1960!) or work in the city or want their kids (or themselves) to be in some kind of private school out there.
Thank God we do not have the ridiculous celebrity scene driving our prices up like.

AWD

Like P.T. Barnum said “there’s a sucker born every minute”

These homes are worth $125,000, if that. But why not get $600,000 if somebody is dumb enough to pay it? Thanks to Bennochio printing trillions and handing it over to banksters and Hedge funds, we have another housing bubble on our hands, but the housing market is in the process of collapsing again. Maybe not in LA (yet), but it will. And why would anyone want to live in the socialist state of California anyway? It’s a tax hell, and one earthquake and drought away from oblivion.

Stucky

I’ll never forget the first time HP flew me out to Cupertino for some training in 1982. I picked up a Homes Magazine and there were ugly used MOBILE HOMES selling for $150,000.

A few years later I had the opportunity to transfer to CA. They offered about a 20% pay increase …. when a 100% would have barely kept me afloat and I thought to myself “Are you fucking nuts!!!?”.

A. R. Wasem
A. R. Wasem

Just purchased a 4000+ sg. ft. mansion (built 1910) in Midwestern small town for $68K. It will need $20 – 30K of rehab/upgrades for final total cost per sq. ft. of less than $25.Real estate rule-of-thumb learned in Chgo. years ago: anything over $100/sq. ft. is “Boardwalk” property. Anyone buying now in SoCal real estate market is locking in a massive, permanent, capital loss (unless, of course, we actually get Zimbabwe-style hyperinflation). BC-LR to all

Chicago999444
Chicago999444

I follow Dr Housing Bubble’s blog and I hate to tell ya, but these pathetic $600K houses are nowhere near being the worst deals for the money in SoCal.

How about $800K for a crumbling 1940 vintage 4-room 800 sq ft fake adobe shack just outside South Central L.A.? I saw this POS on the public listings and couldn’t believe you could even get an occupancy permit for a shack like that. Neighborhoods overrun with gangs, graffitti and nightly gunfights are being “gentrified” by people priced completely out of the more desirable west side precincts, and prices are ramping up rapidly into nosebleed territory as high tech types with $200K a year salaries scramble to make payments on $1M mortgages on 1950s vintage 3 bed 1 bath crapboxes built on concrete slabs. You wonder what is the use of making $200K a year if you are going to pay even beyond your elevated salary to live a degraded lifestyle that a $40,000 worker in “flyover” country would be contemptuous of, while you can live in a nice house, or at least a sweet 1200 sq ft condo, for less than $100K in a fairly good neighborhood in a decent city with access to all the urban amenities and conveniences, in the Midwest or the South.

Why is this happening? What is making it possible? Well, it looks like 100% DTI and ARM “flipper” loans are back, and the bar is being lowered inch by inch. Last year, jumbo loans with 100% DTI ratios became available to “prime” borrowers with FICOs of 780 or higher. Never mind that you won’t have a FICO of 780 for very long after you borrow 4X your income to buy some wretched, laughably overpriced fixer-upper in a neighborhood that should have been shoveled under 40 years ago. Then, the bar was lowered to a FICO of 720. Then to 680. Now, 5/1 ARMS for 100% LTV are being made available to folks with FICOs of 600 and histories of recent foreclosures and bankruptcies.

I’m only trying to figure out when the bust will occur, so I can remove my money from the bank in time and put it in a (relatively) safe place where I can put my hands on it. When the bust does occur, we will experience a wave of monster asset deflation that will wreck everything in its path, and the bank losses will dwarf those of 2008, because there is still a massive overhang of pre-2008 bad debt that has been swept off the books and out of view, but still lurks like a cancer tumor. And this time we will no way no how be able to bail the banks and markets out because we are at the outside limit of what the taxpayers can absorb.

Gayle

That house in Pasadena is overpriced. I predict a price reduction before it sells. Or, an investor from China may snap it up for cash.

People will pay premium prices to live in Pasadena. It is a prosperous, beautiful city full of gracious old neighborhoods and stunning architecture located at the base of a mountain range. It is culturally rich, and there is in fact a train line (the Metro Gold Line) to downtown L.A. For urban types, there’s nothing not to like.

I checked Zillow to see how my house (60 miles east of L.A.) is doing. Up $16,800 in the past 30 days, which is nuts.

Oh, the blowup is going to be something.

Dutchman
Dutchman

Those homes are ‘dumps’. Three bedrooms, two baths – in 1200 sq/ft! They really qualify as ‘houseettes’. Kitchenette, Bathroomettes, Bedroomettes. Probably the largest bedroom is 9×12.

Here in Minneapolis something like that would be $170k.

bb

I have a friend whose parents bought a house in Stanton CA in 1965 for 15,000 dollars. His mom just recently had it apprised at 450,000 dollars.1/4 ac. Of land ,3 bed room .I have been in the house a couple times. Nice little house but not worth 450,000 dollars. What is surprising is they are the only white people in the neighborhood now .It mostly Asians who just got to this country in the last 10 -15 years. How they could afford to buy these houses is maddening. Most of these where sub-prime loans.Now there are empty houses or 20 people living in one house with 10 cars parked outside.My friend says the neighborhood has changed and he would not want to live there.When they sell they are leaving CA for good.

AWD

Keynes Would Be Proud: ‘Blight Removal Task Force’ Calls For 10% Of Detroit Homes Be Torn Down

Submitted by Tyler Durden on 05/27/2014 – 17:00

20% of Detroit homes are in some state of disrepair and as Bloomberg reports, a much-anticipated report from the city’s Blight Removal Task Force says that about half of these should be torn down immediately. Despite Detroit home prices still rising exuberantly in March, over 40,000 structures in the bankrupt city need to be immediately destroyed and a further 44,000 demand attention. The cost of this demolition – about $800 million – which the task force hopes will come from the government. The Keynesian circle is complete – government subsidized mortgages enabled everyone to own a home no matter how unaffordable and now taxpayer funds will subsidize the demolition of that American Dream. Money well spent…

El Coyote
El Coyote

According to Zillow, my humble abode is nearing 90% of my mortgage balance. We are in the AV, we look down on San Berdu folks but look up to most people down below, even Compton prices beat our home values. We can only dream of living where Stuck lives.

ASIG
ASIG

You want to see crazy, this one is so far beyond crazy there are just no words to describe it.

This place sold in 09/03 for 300K
12/08 it was listed for sale $900K,—– NS
08/10 dropped the price to $599K,—–NS
10/11 listed for $800K——NS
01/12 listed for $750K——-NS Then for whatever reason look at what comes next
09/13 listed for $1,650,000 I mean WTF?—OH but wait it only gets better
03/14 listed for $2,550,000

And just so you know the person that bought it in 12/08 didn’t fix it up, it’s being listed “AS IS” it’s basically a “Fixer Upper”

http://www.zillow.com/homedetails/402-N-3rd-St-San-Jose-CA-95112/82957001_zpid/

ASIG
ASIG

correction the only sale was in 09/03 no sale in 12/08

should read– the person that bought it in 09/03 didn’t fix it up,

Joseph E Fasciani

Yeppers, all signs of another even more massive blow-off soon coming to a neighbourhood near you!

Welshman
Welshman

Higher end homes in N, Calif. start rising about two years later than the Bay Area. Retirees sell their Bay Area homes for a bundle, come inland and see what they can buy for 500,000. and do a happy dance. Our city has lots of well-to-do retirees.

. The Chinese are buying property in the Bay Area hand over fist, they will buy anything to get their money out of shit-hole China.

I don’t know if I could sleep at night with a 30 year 500,000. mortgage, even at these low interest rates.

Stucky

Well, if you lived in Sandy Hook you could have gotten a house for free.

“In a conclusive video [below] titled Sandy Hook School Shooting Actors Got FREE Houses, LogicBeforeAuthority documents and explains how many of the “actors” who were allegedly involved in the Sandy Hook school shooting were actually given rather large Christmas presents in 2009, inheriting their homes for free.”

http://www.youtube.com/watch?feature=player_detailpage&v=HRqLV4DiQRE

spinolator
spinolator

Buy now or be priced out forevah suckas!

Hope

This MOBILE home was listed for $1 MILLION Bernanke bucks in Malibu, CA.

comment image

Gosh, I guess that brings a whole new meaning to the phrase “trailer park trash”.

dinner tonight

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