Culver City real estate example of a mid-tier city tipping over into correction. Average income $77,000 yet most MLS listed homes selling for $700,000 or more. Few foreclosures selling for 33 percent below MLS non-distressed properties.

Certain California cities are going to see dramatic price cuts in the next few years.  As banks begin leaking properties out slowly prices will decline because lending standards have gotten tighter but also perceptions are shifting.  One such area is Culver City in Southern California.  Culver City is what I would consider a mid-tier market with bubble prices from the heyday of the housing mania.  These are the areas that are poised to see dramatic price reductions.  Incomes are solid in the city but nothing even remotely close to support the current prices.  Many of the homes purchased with Alt-A and option ARMs are already in the shadow inventory in this area.  At a certain point they will hit the market.  I decided to look at every MLS listed single family home in Culver City and examine what a market reaching a tipping point would look like.

Culver City inflated bubble prices in 2011

The MLS has 39 single family homes listed for sale as of February 27.  Let us first look at the average list price:

culver city average list price

Source:  MLS

Of course the average price is going to be skewed by the expensive homes in the list but it is amazing how inflated most MLS homes for Culver City remain in this market.  If we break out the range of the 39 homes even further we realize how delusional sellers are in Culver City even to this day:

culver city list price

Only 3 foreclosures are listed on the MLS for Culver City.  As you would suspect the 1 home selling in the $300,000 price range ($329,000 to be exact) is a foreclosure.  The average square foot price for the 39 listed homes comes out to $460.81. Yet if we take the 3 foreclosures the average square foot list price for these homes is $305.  The 3 foreclosures are selling on average for 33 percent below the current average square foot price of the non-distressed homes.  These dynamics are not unique to Culver City alone but many California cities remain in a state of denial and the only thing that will shake this up is the fact that banks are now moving on more shadow inventory.  What do you think will happen to local market comparisons when more of these homes begin to sell?  This has happened in most of the markets in the United States were home prices have taken on severe corrections.  It will happen here as well.  Those who choose to ignore reality need to look at the shadow inventory in Culver City:

culver city foreclosures

39 MLS listed homes and only 3 foreclosures show up.  However we know that as of today 191 homes are in some state of foreclosure for the city.  In other words, in a city that is supposed to be prime you have 6 times the MLS listed inventory with homeowners unable or unwilling to make their current mortgage payments.

The median sales price for Culver City last month breaks down as follows:

90230:                   $433,000              (six home sales)

90232:                $711,000 (one home sale)

Now think about the above dataset.  Only one home sold in the 90232 area which is more expensive and more exclusive.  This doesn’t really give you a good set of data for the market.  Since prices are heading back to 2000 levels in many areas let us examine what prices were back then for these two zip codes:

January 2001 (Culver City)

90230:                   $347,000              (14 home sales)

90232:                   $317,000              (6 home sales)

This should give you a good sense of how inflated the market has gotten in Culver City.  The 90230 zip code is edging lower quicker as the median price is already in the low $400,000 range.  But where are these homes on the MLS?  As the above chart shows most are priced above this range.

What occurs in a market that is tipping over is homes that are priced lower like the foreclosures are quickly snatched up and these result in a lower median price.  Those who bought pre-bubble days and are more realistic start chasing the market down.  13 of the 39 MLS homes have a reduced price (33 percent).  The only reason you would reduce your price is because no one is biting.  The lower priced 90230 zip code is the first to drag the Culver City market lower.  The fact that only one home sold in the 90232 zip code tells you how inflated it is.  Let us look at the current MLS inventory here:

90232 zip code home prices

Of the 39 Culver City homes 12 are in the 90232 zip code.  9 of those homes have a list price above $700,000 and 3 are listed above $1 million.  How well are people doing in this market?  Surely they must be making $250,000 or higher per household:

tax returns culver city

The average adjusted income for the 90232 zip code is $77,000 yet 75 percent of homes on the MLS for sale in this zip code cost $700,000 or more!  When I see data like this I know it will not end well.  These are the kind of metrics that busted every other housing bubble throughout the country including in many parts of California.  These areas are only taking longer to correct.  Just look at the massive shadow inventory of 191 properties.  It is completely unsupportable.  And what you get for the price is reminiscent of the old school Real Homes of Genius.  Take a look at this place:

culver city home for sale

3329 FAY AVE, Culver City, CA 90232

List Price              $599,000

Listed    01/27/11

Beds      2

Full Baths            1

Partial Baths      0

Property Type   SFR

Sq. Ft.   915

$/Sq. Ft.               $655

Lot Size                4,800 Sq. Ft.

Year Built            1925

Let us assume your household makes the average $77,000 for this zip code.  We’ll pick out the cheapest MLS home in the 90232 which comes in at a whopping 915 square feet.  Can you afford this place?  Let us run the numbers:

california tax break down

Your net take home pay is $4,561.  Let us just assume that you managed to save 10 percent for this place and decide to buy:

10 percent down:            $59,900

PITI:                                       $3,600  (5.25% 30 year fixed mortgage)

You are left with slightly more than $900 per month for food, gas, utilities, repairs, cell phones, healthcare, and every other expense of life.  How in the world can this be supported? It can’t and it will bust just like every other bubble market has.  I know people like to think markets like Culver City are somehow primed for another move up but these are the markets that will take the brunt of the correction in the next few years.  What I consider a correction is anything over 10 percent and we will definitely get that.  This would evaporate any down payment used on the home.

Even if you are the hypothetical family above, why would you pay this much for a 900 square foot home built in 1925?  The numbers flat out don’t work and when things get this out of equilibrium bubbles burst in spectacular fashion.

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86 Responses to “Culver City real estate example of a mid-tier city tipping over into correction. Average income $77,000 yet most MLS listed homes selling for $700,000 or more. Few foreclosures selling for 33 percent below MLS non-distressed properties.”

  • Hello Doc. I have been lurking on your blog for a few weeks now and truly appreciate your information and style of writing and presenting facts. I also see there are lots of intelligent replies to your posts. I have lived in LA my whole life and enjoy seeing the posts on LA area. Maybe someone can give me some advice. Right now, I am in a 1 bedroom apt in Santa Monica and pay $1250 per month but rent out the garage for $150 (so I pay about $1100 per month). My fiance (she now pays $1400 per month rent in Pasadena) and I want to buy a 3 bedroom house in mid-cities LA, (the 2 other bedrooms for offices since we work from home). But it seems I should just keep renting for another year or two – I just dont like the idea of paying a landlord $2,000 or more in rent, without acquiring any equity. I would only be able to put 10% down on a house as of now. Anyway, appreciate your wisdom or any other replies. Overall it seems that ‘time is on my side’ financially?
    Thanks in advance

    • The old “throwing money away on rent” argument.

      1. You don’t build equity in the early part of a mortgage as most of the money goes towards interest.

      2. You don’t build equity when you overpay for a house.

      3. The interest deduction is overstated.

      If you’ve REALLY been following the blog and comments you wouldn’t need to ask for advice. If you DO need to ask advice from anonymous bloggers, you probably aren’t ready to buy a house.

      • That is certainly straight to the point. This is a true response. I hear all of the time that people read these blogs and then they make some ancillary comment meant to tap into the expertise of the author. Blogs are not here for free market advice, they are here to shed some logic on a nebulous subject. I appreciate EconE and the work he/she puts in here. We should respect that and not take advantage.

        Keep up the good work!

      • Thanks Brian. I get sick of the sockpuppets and their *seemingly* innocent questions which are nothing but noise designed to break up the conversation and insert FUD (fear, uncertainty and doubt).

        That’s why I come off as such an asshole at times.

      • @EconE – Since we are being blunt. You missed a critical gut-punch; property taxes! They essentially evaporate your money and many do not account for them when considering purchasing a home. Granted, you essentially pay property taxes when you rent too, but it’s already in the rent, in the price you are given.

        I don’t understand people who tout mortgage interest deductions; so you are able to write off a sliver of the fee you pay to borrow money, congratulations!

      • Nancy Waterman

        Awesome answer. Thanks.

    • Daniel,
      With home prices in decline, there is no equity to gain. Almost anything you buy now will be worth less next year and probably even the year after that.

    • Definitely, Daniel! Keep reading older blogs, too and you will get the picture. I would love to know the real world FMV of your apartment. Maybe your landlord is not happy either? Many LLs are bleeding cash these days when a l l costs are added up. It starts with property taxes and insurance premiums eating up at least 3 months’ rent.

  • I forgot to mention, my gross salary is $8K per month and I am a single filer and I have zero debt.

    • For now, keep “paying yourself” what I mean is sacrifice as MOST you can, by setting a monthly goal to SAVE. You make good enough money, I don’t see why you can’t save at least $2,000 a month. When I was making $24K per year, I was saving $1000 a month. Double or triple that potential downpayment over the next year or so, while the market continues its decline. Keep an eye on prices in your desired area, you’ll become an expert on what is a good price, moreso than any realtard.

  • wow, blowing my mind here. we looked at that Fay house. its a dump inside. we are renting a really nice house for 2,000 on the street we love in the neighborhood we love, in 90232 and in the school district we want. To buy, we would have to move to a less desired zip code and neighborhood and school district and the mortgage and taxes would be up in the 3500 – 4000 range. As someone who has 20% to put down and a double income above the the avg. you mentioned, there’s no way we are going to buy and no way that it is affordable for us to buy – and that’s for a less desired neighborhood and school. Been looking seriously in CC to buy but realizing it makes way more sense to keep renting. And to think that I really really wanted to buy a house.

  • I just have to show you this new building in my town. It’s a mixed-use bldg., I think there 10-13 condos and 6-8 retail spaces. They went on the market the summer of 2010 and there is only one business there and one condo sold. The condos have a lovely view of the gas station across the street!

    http://www.redfin.com/CA/South-Pasadena/1401-Mission-St-91030/unit-206/home/28672668

    • If you look at all the stick build condos from the 80’s and 90’s you can see how poorly they weather the test of time. Now consider that those units, if bought new, haven’t even paid off their original mortgages. When I see condos where the original owners have paid off their 30 year mortgages (Built in the late 70’s), I see buildings that are either ready to be bulldozed or are in dire need of all kinds of deferred maintenance and have turned into money pits.

    • Redfin shows that at least three of the units have sold since November. One of them above asking. I often wonder whether Redfin’s selling price data can be taken at face value. I suspect not.

      • Native Pasadenan

        Well, if they sold, these people don’t believe in turning their lights on at night! I drive by all hours of the day/night and I never see signs of life.

    • i think the unit itself is built on top of what used to be another gas station. that corner has been vacant for close to a decade maybe? it’s nice walking distance to the local restaurants, post office and the soda fountain, but totally not worth 600K

  • The $900/month number you gave is interesting. I have to wonder how much effect the rising cost (or kudosification, if you remember the kudos snack bar from the 90s that got progressively smaller, but stayed the same price) of food, transportation, etc., will have on it.

    Add in other typical debts (college, especially) and expenses, how much do you have to live off? Unless you have absolutely no debt, don’t plan on buying a car, don’t think you’ll ever have any sort of emergency (medical or otherwise), and don’t ever plan on enjoying yourself, at the end of the day, what are you left with? 915 square feet and a very boring life living the “American Dream.” It’s not a very comfortable lifestyle, any way you cut it.

    • Agree that all areas are set to fall over the next few years although I have to admit we are going to buy a house in the next three months or so. However, I am confident that we will get a hell of a deal just due to the simple fact that we are sitting back with no contingencies, excellent credit, and 20 percent down. But most importantly, there are hundreds of houses sitting in the area we are looking in that are not selling. When the spring standard homes come on plus the addition of more foreclosures it is gong to be easy picking and a simple supply vs. demand equation. My believe is that if you don’t believe the realtors when they tell their lies regarding “there is another offer” or “we priced this to sell” and are ready to walk something will pan out. It is a probability deal and should be fun.

      • Renter, if I were to buy this year, it would be with the mindset that I’m going to lowball everybody 15 to 20% – like a drunk guy at a bar throwing out terrible lines. Might get slapped 20 times, but just need it to work once. One desperate seller is all it takes. Certainly not trying to make friends here.

      • Next 3 months? What are you thinking? Save 40% down, dont be dumb!!! (this will be easy, as you save more, and prices decline more, your 20% and continued savings and sacrifice will get closer to 40%!!) Be Smart!!

      • Folks, If you haven’t realized yet…”Renter” is a sockpuppet.

        If you check out the past posts, it’s always

        “I’m gonna buy in the next few months” Sockpuppet

        “Rates are low” realtorspeak

        “Uhhh gee Goc…what about inflation?!?” more realtorspeak

        “Hey…look at what a great deal this house is!” Not one of the houses “renter pointed to was a good nor even close to good deal.

        Every. Single. Post.

        Same shit from all the sockpuppets posing as buyers just itching to get off the fence.

        Other statements will be

        “I’ve got a good downpayment” why are they telling US this?

        “I’ve got excellent credit” Once again…why are they telling us?

        “My job’s secure” Sure it is.

        “My wife is pushing me to buy” Helllloooo…MANGINA.

        “Well, where do you guys suggest I invest my savings? Everything else is a gamble!”

        YOU SAVE YOUR **KING SAVINGS DUMBASS.

        The sockpuppets will NEVER comment on the topic of the post (unemployment, optionARMS, macroeconomic factors) and will continually pose their *innocent* navel gazing questions.

      • EconE,

        “Well, where do you guys suggest I invest my savings? Everything else is a gamble!”

        YOU SAVE YOUR **KING SAVINGS DUMBASS.

        I’ve asked this question before, and I hope this wasn’t directed at me, but if it was, I sincerely apologize if I come off as a sock puppet, as it really isn’t my intention. I am pretty ignorant of a lot of these things, but am learning.

        Unfortunately, there’s only one way to learn how to swim. Too bad most of the pools these days are polluted.

        Please understand how difficult it is for someone in my position to learn about finances, housing, etc. As a relative newcomer, I have few options. I can take classes (which I’m doing right now), read books (good luck finding the right one), or I can engage in honest discourse with folks who know what they’re talking about. Unfortunately, almost every forum out there is either flooded with polemics, posters who exist for no other reason except to derail discussion (like Renter), and posters with hidden agendas that all involve your wallet. Perhaps this is by design.

        This site is one of the few places that is different. As a Californian, myself, the information is relevant and timely, and I’ve learned more here than I have in my Economics classes (according to them, inflation is extremely low right now). But more importantly, it’s honest. No one, except for maybe Renter, is out to mislead and manipulate people.

        At any rate, I apologize and will try to keep more on topic in the future.

    • Petrin, I appreciate your comment on the “kudosification” of consumer goods. My favorite brand of OJ, Tropicana, recently re-designed it’s packaging to a clear bottle and conveniently reduced the size from 64oz to 59oz. Needless to say, I am PISSED!

      This type of thing is happening with all products being sold to consumers from food to clothing, and even airline tickets (remember when checked baggage was free on all airlines, not just Southwest?). We’re getting nickel and dimed so these big corporations can squeeze out slightly better margins and I’m tired of it!

      • Ad on TV: “Kudos bars, now 25% fewer calories! Buy Kudos bars, the healthy snack bar! Now in convenient, new packaging!”

        Then you buy one and notice it’s also 25% smaller, but at the same price. I swear the Kudos bar was a pilot program for what’s going on now.

        A bag of coffee used to be 16 ounces, now it’s 12. Triscuits used to be 16 ounces, now I think they’re 14ish. The list goes on and on, but I think my favorite is when they try to make the packaging look larger. The worst offenders are probably cereal boxes, which have been getting progressively taller and wider, but narrower. I’m eagerly anticipating the day when a box of Frosted Flakes is like 4 feet tall and a quarter inch thick. Grocery stores will stack them on the shelves like magazines and it’ll be advertised as “convenient, new packaging!”

        But yeah, the stuff is sooo prevalent, and the cost of housing will often be used to mask the inflation that’s happening. 2% inflation this year, says the Fed! Sure, maybe it is when you throw housing into the mix. But food and other essentials are still a LOT more expensive than they used to be. And who buys (and needs) food? Answer: Everyone. But who buys houses? Answer: Not everyone.

  • Good post, Doc. You are being too generous with your assumptions in that last example, I’m afraid (as you well know, but I’ll point it out anyway):

    1) Someone in that situation would likely not even be able to save the 10% down

    2) The above sad (pathetic sad, not sad sad) example allows for no retirement savings and / or investments….this is all too common, and I can hardly stomach it.

  • How relevant your blog always seems to be…I was just looking at a duplex today in CC. In any case, Dr. HB, where does one find out more about this ‘shadow inventory’ you refer to? Is it public info in you know where to look or is it a subscription service or other. Thanks.

    • Why do the sockpuppets always put the term shadow inventory in quotes? It it to debate the veracity of DrHB’s claims?

      Here is how you find it.

      1. Look at where the foreclosures are in any given neighborhood. They are the WORST houses in the WORST locations. Do you think that people with toxic optionARMs or the propensity to use their home as an ATM only lived in a home that was either A. Just about to fall down. B. On a busy street C. At a T Intersection D. Backing to a freeway/railroad track.

      2. Get a subscription to a service where you can view mortgage records. You can see what people paid for their homes and their mortgage history. If they increased their mortgage THEY ARE GOING TO LOSE THEIR HOUSE EVENTUALLY. No ifs ands or buts about it. If they could afford the increased (double or triple) mortgage, they probably wouldn’t have had to borrow money for whatever it was that they bought.

      Pull up the mortgages on all the neighboring homes. ALL OF THEM. If you say you don’t want to pay for a service or you don’t have the time then you’re probably either full of shit or dumb as a box of rocks.

      3. Common sense.

      The reason that the homes don’t show up on the consumer sites (Realtytrac, etc) as a NOD or Foreclosure is because even though the debtor hasn’t made a payment in forever, the banks HAVEN’T ISSUED A NOD YET.

      • Notice how there is never a retort by them in their defense? Also, based upon the writing style and use of single quots, etc. I am betting it’s the same shrill.

      • I love it , EconE. You and Dr. HB should be a tag team duo.

        And exactly – the foreclosures/REOs/bank owned that are actually on the market are just pure trash, or in the WAAAAY outlying/least desirable areas, or all of the above. But just a chart noted in a Dr. HB story a few days prior (I believe it’s the “5 reasons 2011 is not the year to buy in Cali”), that chart indicated that in the peak years the average downpayment on a home purchased with a mortgage dropped to almost 0!!! Meaning virtually everyone who bought a home with a mortgage in those peak years in Cali put NOTHING DOWN. There is absolutely no shortage of “fronters” or “aspirational” buyers in the best/most prime/most affluent zip codes and neighborhoods of LA County/City/etc. who bought in the peak years and are now homedebtors – severely underwater and/or have lost or are going to lose their properties. The rich and the rich wannabes especially are more often than not just as stupid as the rest of the general population.

      • @EconE:
        2. Get a subscription to a service where you can view mortgage records.

        could you name one or two that you are referring to? I would like to check them out.

      • Ain’t it the truth Foolio. Here in Hancock Park proper, 99% of the homes that have been foreclosed on are on Highland and Rossmore. I guess nobody on Muirfield, Rimpau, Hudson, June, Las Palmas or Mcadden used their homes as ATMs.

        They’ll be picked off one by one.

        Just Some Guy…

        There are tons and tons of paid public records search sites. Google is your friend.

  • And yet, realtors claim that now’s the time to buy! They say that
    investors are snatching up homes in a mad rush, and that when interest rates go up
    it will diminish your purchasing power!
    Realtors say that they’re getting multiple offers on homes and you better get in now!
    Or be priced out forever!

    • Of course, Gerald! It’s ALWAYS a great time to buy! And ALWAYS a great time to sell, too!

      I wish interest rates would go up…hell I wish they would double or triple or more! I’m sitting on cash ready to buy buy buy. I love that one – “purchasing power goes down”…as if that’s a bad thing. Yeah real-turds and real-tard, purchasing power goes down, and with it SELLING PRICES.

      All you delusional sellers still out there, holding out for the miracle of the last idiot/sucker in this game of musical chairs, to save you from the option ARM, negative amortization, pick-a-payment 0 down no doc low doc loan that is now coming home to roost – FORGET IT!

      You’re not going to be rescued…better just list it at what it’s worth and take the “lowball” offers for a short sale/loss versus the inpending foreclosure. Here’s the NEW paradigm for all you NAR clowns out there to use on your underwater and sellers with chronic DSP (delusional seller pricing) syndrome:

      SELL NOW OR BE PRICED IN FOREVER…OR AT LEAST UNTIL THE BANK BOOTS YOU!

      • The banks wont let any of the homedebtors sell. The banks are now in competition with them and will undercut any normal seller quickly I’m betting that in due time they’ll all be foreclosed on anyways and are wouldn’t doubt that they’re in cahoots with the banks hoping that when they finally do lose their homes that the banks will “go easy on them”.

  • informed sideliner

    @ Native Pasadenan

    $628,000 for a condo. They’re crazy. I know that area, and its definately no Beverly Hills.

    • Not just crazy, batsh*t crazy! I went to the open house just to see what they were like and they were not anything special. I’m just sick of these developers getting their way in this town. We have 3 condo bldgs. in foreclosure and they keep building more.

  • After the A-Bomb

    3329 FAY AVE, Culver City, CA 90232

    “Wow!” is all I can say. Francis says “wow, blowing my mind here. we looked at that Fay house. its a dump inside…” Cute on the outside, a dump on the inside, and SELLING FOR $599,000! Nuts! And Native Pasadenan shows us an ugly condo selling for $628,000!

    Insanity. I think all of the insane sellers belong on the funny farm, the nut house, the insane asylum, the madhouse, the loony bin… Either that, or send them to Siberia.

    Seriously, this schitt is getting old.

  • Daniel- yes, keep renting . Prices are still declining.
    If you do buy, get a 15 year mortgage. On a 30 year mortage, you build virtually no equity after 10 years of housepayments. 90% of that is only interest on the debt.
    Payments or $2,000. a month for 10 years= $240,000.
    Equity- $24,000.

    • Getting a 15yr mortgage makes the most sense as you pay the least amount in interest over the life of the loan. HOWEVER, what do you think of getting a 30yr loan, but making payments as if its a 15yr?

      My reasoning is that IF something were to happen (lost job, medical emergency) where you were strapped for funds you had the option of paying your normal 30yr fixed payment (until you pulled yourself out of the emergency) as opposed to the higher payment you were CHOOSING to pay every month.

      What do you think? Make sense or am i crazy?

      • This is an often recommended strategy by financial analysts. You can pay down a 30 year loan in 16 years or under. The most recommended strategy is to pay double the principal per payment. It does have one caveat though. The double payment in the final years of the mortgage will be quite high growing to close to double the monthly payment. Clearly your income needs to grow to keep pace with that. The advantage of the 15 year note is that your payment stays even. I think you end up paying only slightly more with the 30 year double interest payment over the 15 year. The 30 year will meet the requirement you mention – if you run into an emergency or financial crises you won’t have as large of a required payment as the 15 year note. Do a careful analysis and make your choice. Do put down 20% to have equity and avoid mortgage insurance.

      • This is exactly what I am thinking to do – 30 years mortgage and I will try to keep payment as 15 years. And the reson is exactly as you say. There is option to fall back in bad times. Actually I am thinking on buying soon and I will do it with minimal down payment even if I have at least for 10% down and I will be watching the market for 2-3 years. If it stabilize I will pay down significant amount of the principal, so even bigger part of my payments will toward pricipal, but if the banks, only if, they loose grip on the prices and 20% down leg happens I am out of it…. Talk about moral hazard?

  • Love the blog. Excellent posts and replies.

    Here is an update on the banks’ situation. An excellent read. They are actually in a really precarious situation. When the tsunami of civil suits and county recorder fees starts to hit, the banks will have serious trouble.

    I do not envy Obama or any of the government players. We might have had a lost two decades like japan with zombie banks, but our legal system is much more open and aggressive. The civil suits alone represent a nightmare scenario for the banks with really no way out.

    Here is the URL:
    http://www.economicpopulist.org/content/mortgage-deal-under-discussion-obama-administration-and-big-banks#comment-17191

    Enjoy!

  • LA is fast becoming NY – Manhattan anyway where for years it has been cheaper to rent than own. On top of prices still at around $1,000 per sq ft, most buyers pay another $1,000 to 2,000 per month in maintenance/HOA fees.

  • You could substitue Burbank for Culver City, and it’s the same story. Tiny houses in need of all kinds of work since they were built in the 20’s to 40’s and never updated. Going for continued bubble prices! Tons of shadow inventory as the Dr. has previously stated. What we are witnessing is another form of banking fraud. They try to keep inventory artificially low to inflate demand for overpriced shacks. They continue to commit fraud and our government encourages them.
    You can steal a whole more with a briefcase than a gun, and you will never do jail time!

    • You are right on. The banks are commiting fraud by purposefully witholding the inventory on foreclosures and then unsuspecting buyers are purchasing Culver City shacks at bubble prices. All this will cause is the never ending cycle of foreclosures as these shacks will eventually revert to much lower prices due to the absences of buyers. The owners will then have to foreclose on a Culver City shack they bought in 2011 for $600,000 and foreclose in 2015 at the actual deflated price of $350,000.

  • I went to this open house yesterday, just to see what $858,000 gets you in South Pasadena. The house is quite small and cramped, tiny kitchen, and unlevel floors throughout. I keep feeling the slopes in the floors! Lots of young well-heeled couples there, some talking to the realtor, but mostly looky-loos like myself. The house is right across the street from an elementary school as well. It has lots of nice bungalow character but, seems like it should be $350,000 at most. I noticed on Redfin that the wishing price is the same as the 2006 sale price…hmmmm.

    http://www.redfin.com/CA/South-Pasadena/1511-Marengo-Ave-91030/home/7007773

    • Thanks for the info! I was going to go see this house on Sunday but did not get a chance. I think that the house is worth somewhere in the 500s and not 800s. South Pasadena has one of the best schools in Southern California. When one buys in this neighborhood, one is not just paying for the house but rather the education of your children.

      • They were paying for the schools back in 1997 also when it sold for $355,000.

        Wouldn’t the smart money realize that if they want to pay for schools, they should live somewhere cheaper and send their kids to Andover?

        Or they could just rent in the same school district. OH THE HORROR!

      • Native Pasadenan

        EconE is right, why not rent? There are some amazing apts. and homes for rent in So. Pas. I have a friend who has a very nice big apt. on the Raymond Hill. With the money she is saving she can send her kid to a Montessori school. Another friend I have ( single mom) rents an apt. and her son goes to So. Pas. middle school. So. Pas. schools are good, but they are very competitive and stressful for some kids. You should find the best school that fits your child’s needs as opposed to national rankings and test scores. Your child will be happier and probably thank you for it some day 🙂 I grew up here but went to Sequoyah School in Pasadena because the So. Pas. schools were too intense. I turned out fine, went to college, grad school, etc. Good Luck!

  • The old rent vs buy debate. The math is very simple, but the psychology injected into people about “throwing away money renting” and “stupid not to buy” is very powerful.

    It’s the American way to be in debt that way you have to keep working and paying taxes. The simple fact that you could rent and save $2000 month means nothing when talking to most people. They stare at you with the deer in the headlights look. Then they inject “I don’t throw away my money” or “My home has been my best investment.” But once they lose one of the two income jobs they need to keep the home they “own” everything changes.

    So I have just avoided these conversations with people. As most of the public really think the national association of realtards really is looking out for their best interest. “My realtor said NOW is the best time to buy.”

    If you skimmed this yes – I was being sarcastic.

    • haha… i visit homes from time to time. i’d still like to buy if the price is right. the number one comment that i receive from realtors/agents is that comment. “Now is the time to buy!” They bring up their story of how they bought at peak and how they wish they could’ve waited. Very few offer me advice to wait it out. I think I’ve met just two out of dozens.

    • Native Pasadenan

      Yep, we live in a very conformist society. Stay strong, don’t let the sheeple get under your skin!

  • Hey Dr HB and readers,
    Do you know of any sites which focus solely on urban real estate, specifically coastal historic “core” urban cities such as…

    San Francisco
    Oakland
    San Jose
    Seattle
    Portland
    NYC proper
    Chicago proper
    Atlanta proper
    Los Angeles proper

    Are RE assets still over-inflated or off-MLS just as suburban and exurban housing stock is?

    Or are these maintaining their vaule better over time? Appreciate any leads.

    Thanks.
    K

  • DHB observed correctly that people are waiting for bargains, buy lower priced places before the still inflated ones, and the median price is pulled down as a result.

    What I always have to wonder about is the costs of ownership where people have a vacant place on the market, but refuse to cut the price to where it will move.

    A prime example comes to mind in our locality (up in the PNW) where people bought at the peak for close to half a million a house that had been assessed at 1/3 less than that. Moved in two and a half years. Then had the place on the block for nearly three years–longer than they lived int it. Refusing to cut their price. All that time they were keeping the acreage mowed, the house kept up/cleaned, the HVAC going, insurance, basic utilities, the mortgage AND INTEREST current, the taxes, and so on. If they had just cut the price to begin with (back to its pre-bubble price), they would have sold then, as they did now, after three years. Instead, they’ve taken the price hit, the hit on maintenance, AND paid all that money to their lender for interest. Three years of it.

    So where is all that wasted money being recorded? I guess as contributions to GDP.

    But I really do not understand how people figure they are getting ahead by maintaining a place when year after year demonstrates no buyers want it at that price. It underscores for me how poor are the arithmetic skills of so many.

    As for people asking DHB for advice–which I too consider jaw-droppingly odd–when people ask me whether I think a house is a good buy, I refer them to several online and printed sources of basic arithmetic. When they’ve mastered that, they’re ready to start considering something like a credit card. Maybe.

    I can see people asking me to go over their spreadsheets/scenarios/formulas, as a way of us “thinking harder.” But when people can’t even do basic math themselves, man, that’s a helluva risk to take, strapping yourself to banksters’ debt when you don’t understand what you’re doing.

    • sometimes you win, sometimes you lose. just as there are those who could have wasted less time by selling it for less up front, there are those who chased the downward trend and helped decrease loss on the home.

      while im sure there are obvious cases where one should have dropped fast and sold early, you cant really blame most people for using such tactics. some will succeed, and that motivates the majority to try their luck. we’re a gambling society

    • Here’s what my suspicious mind suspects.

      Homedebtor buys house near peak with 0 down optionARM.

      Homedebtor moves 2 years later for whatever reason.

      Option ARM hasn’t reset/recast yet so they’re able to hold on as long as the payments are super low…possibly burning through savings all the while eating beans and rice.

      Homedebtor can’t lower price as they don’t have enough money to bring to the table. They just have enough to keep up with the monthly nut….for now.

      Homedebtor does their best to keep the place up because if they let it fall into disrepair, the final selling price will reflect that and they will have an even larger judgement against them for the unpaid loan balance. Even though they won’t see any money, they hope the bank gets as much as possible for it when it’s finally foreclosed on and sold.

      Homedebtor is not lowering the price into short-sale territory as the bank probably says NO as the bank would prefer that the homedebtor burns through every last bit of savings first.

      Just a random guess…but it sounds plausible to me.

  • I’d like to see DrHB do a post aimed at sellers. That is, people who want to sell, not have to sell.

    We bought in the early 1990s, and still have plenty of equity in our home. But we’d like to move to a better neighborhood, for our kids to grow up in (we don’t live in a really bad area, we’d just like to be in a little bit better one).

    So if we pay “too much” for a new house, with inflated proceeds from selling our existing house, are we that bad off then? I obviously don’t want to throw money away, but the kids aren’t kids forever either.

    • depends on where you live and where you want to live, but in general, if you’re just hopping houses, i think that’s a justifiable move. (i’m assuming your home will de-value similarly to the homes you are looking to buy)

    • Good question. Spend some time in this blog and come to your own conclusion. Hey, if you find a great deal go for it. But, the math is against you. Since lower priced housing has corrected more than higher priced housing, you are swimming upstream.

    • 1. What glisten said.

      2. You’re competing with the banks. Price it right and it will sell. Then, after you sell re-read what glisten says about swimming upstream.

  • http://mobile.latimes.com/wap/news/text.jsp?sid=294&nid=40211017&cid=16680&scid=-1&ith=1&title=L.A.+NOW

    This seemed pretty interesting to me since we all suspected that there was a lot of this going on during the run up. Interesting how they put the blame on the homeowners (who no doubt deserve some blame here,) but what about the loan officer, the bank managers, the wall street firms, and the ratings agencies who were all complicit in this by pushing these crap loans and encouraging people to lie on their applications so they could keep feeding the wall street cdo beast?

    • I’m no attorney, but let’s say she gets 4 years with time off for good behavior. What about the bankers who knew or should have known this was going on? Who are at least partially responsible for 100’s of thousands of these mortgages. Do they get 4 years per occurrence?

      No, they get bonuses after We the People gave them 100’s of billions of dollars. Does not seem like Justice to me.

  • Yes, Culver City will get hit hard, as the middle tier is the next domino to fall. On the high end, I’m noticing a zillion signs out already, in places like Santa Monica, Brentwood and Malibu. My guess is, these are upside down sellers trying to get a jump on the market (In February!) With all of the inventory lurking out there, this spring will bring double digit price declines in the niddle and higher end markets.

    http://www.westsideremeltdown.blogspot.com
    http://www.santamonicameltdownthe90402.blogspot.com

  • I only wish interest rates were 10 or 12%. I know they may not go that high in the next few years, but may think about buying when they get a bit higher.

    • Well, that will certainly cause house prices to fall, as everything is based on the monthly payment, as is pointed out in this article. Not sure how this will affect folks with cash, why invest in real estate, when CD rates will provide good returns.

    • Given that our federal government will owe about 20 trillion dollars in national debt in just a couple years, the Federal Reserve will not allow rates to rise that much until the true value of 20 trillion has been inflated away by at least 70%.

      I no longer believe the BULL that the free market controls the long yield curve.

      So, you may get 10% in 10 to 15 years or you may get 10% sooner as long as inflation is at least 10%

    • And why is that, GMan? Because you have the cash and won’t need a loan and you like how the inevitable creeping up of mortgage rates will depress prices further? You want to get a better deal, is that it?

      • Kf6vci I have been renting for the last 15 yrs and have saved and invested the extra cash during that time. I am paying cash for the property and investing the rest, so higher interest rates are better. Even if one does not pay cash higher interest rates is when one should buy, because one can always refi at a lower rate further down the road.

  • EconE are you like 105 years old with a sour outlook on life sipping cheap wine at the keyboard ? Wow, get a life. We had an illness in the family that cost a lot of $$$ out of pocket and we are shopping for a deal on a house. SIMPLE AS THAT YOU MORON. This illness caused me to realize life goes quick and while I agree that waiting would save money I don’t give a Sh-T!!!! We are going a buy a home in a nice area at the best deal possible and get my family into a great place . I am not a realtor pretending to rent. You should think about getting professional help. Do you talk to people like this in real life or just on websites like this one?

  • I plan to sell my house and buy another one. My main reason is our commutes to Los Angeles, 3 hours per day. Since my son is freshman now, this summer is last time before high school graduation.

    I am looking for a house at 91011. I submitt two offers for REOs.
    First one: $1.o5M for $1.34M ( 2 offers)
    Second one: $1.16M for 1.15M (about 10 offeres)
    Both are accepted other offers, which was disappointing.

    Regular house are in the range of $1.5M. I have to sell my house first to afford those.
    I don’t know what price I will get from my current house.

    If anyone can comment on housing market of 91011 next 3 to 4 months, I would appreciate.

    • I’ll comment on La Canada (91011) since I know it well. RENT. RENT RENT RENT RENT RENT. Find a rental and bide your time to buy. Certainly there is plenty of wealth and affluence in them thar (foot)hills, but there is no shortage of fronters, pretenders, and aspirationals living beyond their means there.

      • Dear Foolio,
        Thanks for your comment. How long should I wait before market correction?
        6 months, 1 or 2 years. Or If you can send me email, glorybrian at yahoo dot com, I can ask some questions. Thanks again.

  • How long will banks sit on a house? How does 5 years+ sound?

    Well…here’s a post I made on Yves Naked Capitalism Blog to give you an example.

    __________________________________________

    In my neighborhood here in Los Angeles (Hancock Park) The banks seem to only be foreclosing on homes that have serious location flaws…in other words…located on an arterial. The last one to go was one of Nic Cage’s (the actor) on Rossmore.

    http://www.zillow.com/homedetails/540-S-Rossmore-Ave-Los-Angeles-CA-90020/20775167_zpid/

    It doesn’t show up on Redfin or Zillow yet but it does show up on RealtyTrac.

    The Realestalker blogged it a few days ago.

    http://realestalker.blogspot.com/2011/02/more-nic-cage-foreclosure-news.html

    There are other homes that the banks *just* got around to foreclosing on that have been vacated since 2006 or earlier. I’m able to discern the date as I can still see the car I sold in April of 2006 parked in the driveway of the house I used to live in (2 blocks to the west) before it was sold in 2007. The pool is empty in the 2006 picture.

    The empty swimming pools are very telling. Yay for google earth!

    Lot’s of fishy stuff going on out there.

    I suspect that there are numerous $3,000,000+ homes on the “better streets” that haven’t made payments for years yet haven’t recieved a single NOD.

    Yves hit paydirt when she heard about all the people with $20,000 mortgages that haven’t made payments in years.

    • Cool to know you’re in my “hood”, EconE. I have a couple of rentals that are true Hancock Park “adjacent” so I am very keen on intel on the area. Thanks for the info. I wish Dr. HB would do an article or two on good old Hancock Park or one of its neighborhoods to the west.

      And yes – you can absolutely see that in “good” or “prime” areas, the banks are holding back tremendously, with the stuff on the market being majorly defective – take a look at 754 S. Highland 90036 for some serious shennanegans. Or the endless crap on Crescent Heights – half that street seems to be on the market or have been on the market in the past year.

  • Is Calculated Risk now a shill for the NAR?

    Record number of Cash Purchasers in Southern California.

    http://www.calculatedriskblog.com/2011/02/home-sales-record-percentage-of-cash.html

    He’s touting that 62% of all homes purchased in January that were over $5,000,000 were purchased by cash buyers.

    When I peruse Redfin for closed sales, there appears to have been…drumrollllllll

    13 sales over $5,000,000 from San Diego to Santa Barbara for January.

    WHOOPTY FUCKING DOO.

    So EIGHT super rich people in all of Southern California paid cash for their $5,000,000+ home. After backing out the errors, only 58 homes over $5,000,000 have been sold in the last 3 months.

    How many homes are currently listed for sale in So Cal over $5,000,000?

    Eight Hundred Thirty Five.

    835 homes listed (not counting overpriced condos)
    58 sold in a quarter.

    835/58 = 14.39 quarters of supply.

    So, it looks like there’s almost 4 years worth of inventory (not counting whatever $5,000,000 plus homes come on the market in the next 4 years) and CR actually re-bleats NAR’s puff piece.

    Sellers market indeed! LOL!

  • Here’s a MSN article as more food for thought.

    http://money.msn.com/home-loans/latest.aspx?post=61091251-39ef-485b-96d8-72d43e4905eb

    Kudlow and Company are crazy to think the CA real estate will rebound.

  • I am the one who posted yesterday and while I am no sockpuppet, I do admit I was not really paying attention to the gist of Dr. HB advice. From all the replies, I admit that I have been one of those LA natives that felt ‘left behind’ by not buying a home and also caused a lot of thoughts of inferiority by not being a home owner. I still need to ween myself off the attitude that I need to be a homeowner now to make up for not being one earlier. But as someone suggested, if I sharpen my pencil then it seems pretty clear this is not a time for me to buy. And I can open my mind to the possibility that it could be 2 or 3 years before the time is right (as an owner/occupier). Appreciate the sincere replies.

    • I respect that you admit not paying attention and wanting others to give you a summary based on your situation; but get your lazy ass informed. 😉 It will help with your guilt and remorse feelings.

      Something else that will help is looking around you, listening, and asking some delicate questions. You will find that you are really lucky not to have bought a home during the mass insanity between ~2004–2008 . I am sure, once you look and listen, you will hear the heart ache, the stress, and the pain that many are in dealing with the hangover.

      First, call me crazy, but have you also not looked into the price of 4 br houses where you want to live? Are you really going to find one there for roughly $290,000, which is an equivalent to $2000 in rent after adjusting for taxes and fees, maintenance, and utilities that are now included. That does not take into account the headache of owning a home and and all the extra stuff you have to purchase to maintain it; albeit it also does not include the benefit of having your own place with a theoretical backyard (which you won’t have at the equivalent price).

      Seriously, I am curious, what is it that the two of you can do to work from home? Is it not possible to have a single, shared office? I assume you have a moocher that would occupy the second bedroom-bedroom? Or is that also an over-extension, e.g., chill room, art room, man-cave, etc.

      Everyone in the know will tell you, especially in CA, this is not the time to buy. The risks are far too great and far too unstable to shackle a house around your ankle. The housing market will be splayed out on a horizontal curve for a good while, which will give an unequivocal indication that it’s rather risk free to purchase. Don’t worry, and please someone correct me if I am wrong, but there is no way that there is a risk of “missing” some sort of stratospheric recovery. Wages and inflation would have to soar to make anything but the market thudding down to a lengthy bottom in exhaustion possible.

  • Here is the problem with gauging housing values based on average income: it doesn’t take into account average housing costs paid by the average income. Only about 3% of the homes are sold in any given area each year. Those buyers may have 2x the average income since a large majority of the homes were purchased years or decades ago.

    When you factor in Prop 13 generational wealth transfer, the average carrying costs most likely better align with average incomes. Unless there is house by house income and mortgage/tax/insur. data, average incomes have no meaning in relation to housing affordability. As far as future sales, all that matters is average buyer income in relation to priced paid and amount financed at prevailing rates.

    Talk about average income just demonstrates a lack of understanding of the real factors involved. Average income in this context makes the logical error of assuming that since B (buyer average income) is a subset of A (all household income) then B is equal to A. Therefore B cannot afford the median priced home in the area since B’s income is not B, but rather A. Object oriented reasoning… not to mention pure silliness.

  • While the good Doctor’s analysis comparison of incomes to mortgage payments has a lot of merit, I can think of situations where it is not predictive.

    For example, say that a neighborhood is largely populated with retirees who are the original owners of the properties from when they first went on the market. My neighborhood here in San Jose resembles this situation. The current owners are now retired with lower incomes. The prospective employed buyers are attracted to the area and gradually replace the original retiree-owners.

    Another situation is gentrification where “pioneer” buyers come in and start upgrading the area – the Haight-Ashbury is an example in San Francisco.

    So DHB’s income comparisons work for stable populations with recent, currently employed owners and buyers of the same economic class.

  • I am a landlord in the above mentioned neighborhood. It is not a good time to buy. We bought our duplex in CC in 1998. In 2008 we had to move for work and decided to rent the property out. Between good realtors, Westside Rentals, and good connections with a plumber and local handyman it is working out well for us and our tenants. We just about break even (taxes, mortgage, insurance, gardener, etc.). We rent the home that we live in now and are so happy we did not sell our CC home and buy in the new area or we’d be underwater right now. Being a renter gives you so much more flexibility when it comes to moves, life changes, and life desires. The world is not the same as it was 20-30-40 years ago. There are more burdens these days to owning your own home than there are benefits.

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