21,000 Los Angeles MLS homes versus 58,000 distressed properties. Southern California multi-million dollar CRE default. Retail spending up because rich are bored with the financial crisis.
The financial crisis rolls into month 29 and here we stand with no significant financial reform. To the contrary, more power has been given up to the banks. It is amazing that so many press releases can be had with such little action. We have truly mastered the art of bread and circus for the masses. In a recent Gallup poll only 13 percent of Americans thought economic conditions were excellent or good. Compare this to 44 percent who thought things were poor (presumably this is the lowest item on the list because the 17 percent who are unemployed or underemployed would say that the economy still sucks). But alas like the HD video of the oil spill, most simply watch while every imaginable option is thrown out on the table without any sensible solution.
It first had to do with TARP being a dumping ground for toxic assets. Then it was the Federal Reserve needing to provide emergency funds to the banks to keep lending going. This was followed by bailing out the investment banks chosen by the plutocracy. Yet here we are with nothing to show for it. In fact, the parade of dumb ideas gets longer as we speak. We should call the Senate Sesame Street because they are a bunch of puppets to Wall Street. Actually, that would be offensive to Sesame Street. There is now talk to extend the home buyer tax credit:
“(WaPo) Home buyers hoping to take advantage of a lucrative federal tax credit would get three extra months to complete their purchases under a proposal introduced in the Senate on Thursday.
Senate Majority Leader Harry M. Reid (D-Nev.) co-authored a proposal that would allow those eligible for the tax credit to close on a home by Sept. 30 to give lenders more time to process a crush of applications.â€
Could it be that the “crush†was caused by the artificial stimulus? Aren’t you glad you have such competent folks up in D.C.? Here in Southern California the housing delusion goes deep into the psyche. In Los Angeles County we have approximately 21,000 homes on the MLS while 58,000+ properties show up as distressed properties. The shadow inventory is alive and well. Of course, if we break down the distress inventory into categories we get an interesting picture:
Sure single family homes are the bulk of foreclosures but we also have a sizeable amount of condo foreclosures hitting the market. I find it interesting that 10 percent of current L.A. foreclosures are with 2-4 unit complexes. These are supposedly bought to cash flow but clearly something else has happened. We also have a good chunk of industrial and commercial real estate problems. These are giant foreclosures and we’ll give you one as an example.
The above place is located in El Monte. It is listed at 70,000 square feet. The place is currently listed for auction:
This place was purchased at the peak of the real estate bubble or close to it. It appears to have 3 loans from the recorded date in 2005 for loans totaling $6.4 million. A notice of default was filed back in February of 2009 and a NTS was filed in August of 2009. The current auction is scheduled for July 15 but hard to say if this will happen since one was postponed because of bankruptcy. The current list price?
$3.5 million for 70,000 square feet in El Monte
You think someone is going to lose money here?
SoCal inventory rising
Southern California inventory keeps the momentum moving up as more and more properties hit the market while the shadow inventory remains large:
Total inventory for Southern California stands over 77,000 but distress properties come in at 153,000. At the very least, until we have an equal amount of MLS data with shadow inventory we can say that the trend is still very much in place. People are so accustomed to absurd California real estate prices that they have forgotten how to value real estate with common metrics. The most common reason to buy given by those in the industry today is “because the government is helping†and “look how far prices have fallen!â€Â Well prices have fallen but for a reason.   This is in stark contrast for prices going up merely because of herd mentality spurred by a mania fueled by Wall Street toxic debt. Why would inventory be moving up steadily if homes were selling like pancakes? The simple reason is sales are starting to weaken while banks are having a harder time holding back the flood gates of properties. Remember that confidence is the name of the game and the public is getting tired of the current circus. Click your ruby slippers hard enough and repeat that “housing values can only go up†and all will be well.
The rich are bored with the crisis
As we found out that retail sales went up, Gallup cut deeper into the data showing that all this gain came from the wealthy:
The poll showed that those making more than $90,000 a year made up the bulk of the retail spending. As you can see from the above chart those in the middle class or working class didn’t spend more because in reality the economy isn’t much better at this level. Could this be because so few make that amount?
In California 32 percent of households make more than $100,000 per year. Although, this data only goes up to the end of 2008. We’ll get a better picture in September. Nationwide only 17 percent of all households make more than $118,000. People for the most part simply aren’t spending. In the past, spending was fueled by debt and that game is quickly coming to an end. Look at Greece and how their debt was just rated as junk. When you spend too much and take on too much debt, there is a point where it is no longer supportable. We’ve reached that point and the Senate trying to extend tax credits so people can buy homes they can’t afford simply reflects this reality.
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24 Responses to “21,000 Los Angeles MLS homes versus 58,000 distressed properties. Southern California multi-million dollar CRE default. Retail spending up because rich are bored with the financial crisis.”
Based on my neighborhood, most of the people increasing spending are government workers, with secure jobs.
Teacher across the street just got back from Hawaii. Going to Rome at Christmas.
State attorney down the street buying a new Jaguar.
Engineer for local water dept. remodeling entire house.
The “haves” are clearly govt. workers.
The “have nots” worried about their jobs are private industry workers.
“In the past, spending was fueled by debt and that game is quickly coming to an end.”
Absolutely. The government is fighting the debt deflation, but there is no way out. People will continue to delever faster than the government can spend it. Great article.
Well, I can’t prove it, but I have a theory on why the better off are spending money again. If housing stress is working it’s way up the food chain into prime areas (option arm country), then wouldn’t it stand to reason that the extra cash is coming from those who aren’t paying their mortgages in these areas? Sort of a perversion of MEW (which was perverse enough), if you will.
If someone wants to get a feeling of the commercial property crises, please welcome to Hawthorne Blvd the stretch in Torrance between Artesia and PCH, it tells a lot of stories…
Ahhh, the good Doctor. Always a ray of sunshine in my otherwise dreary day. Just teasing of course. Because of your truly informative articles my girlfriend and I have decided to postpone buying a home indefinitely. It took us two years to come to his decision and we couldn’t be happier. I still read your blog because I’m hooked now but otherwise I just stopped caring. I wonder how many people like myself there are in LA now. Folks who just stopped worrying about buying a home and have moved on with their lives.
I’m right behind you Fred…my wife and I recently looked for homes in Hermosa Beach. We make $105,000 per year and I believe the median income for Hermosa Beach residents is about the same. Bottom line…we couldn’t afford a single 3 bedroom SFR – cheapest I found was a $580,000 SHORT SALE (which was snapped up in about a week). Even the rents for a 3 bedroom SFR are out of our range. I’m done trying to make sense of this SoCal market.
“If someone wants to get a feeling of the commercial property crises, please welcome to Hawthorne Blvd the stretch in Torrance between Artesia and PCH, it tells a lot of stories…”
LOL, I’ve driven that particular stretch TWICE in the last week, and I too noticed an incredible amount of empty retail storefronts, going out of business and already shuttered businesses. And, that stretch is hardly the exception. While the ultra high end retail always has high turnover, there are TONS of empty retail storefronts, offices, etc. in Beverly Hills including Rodeo and around it. Beverly Drive isn’t looking so hot, neither is Robertson, La Cienega, etc. Olympic between Beverly Drive and Robertson is also an absolute bloodbath…TONS of “for lease” “for sale” empty and abandoned storefronts.
I’m sure though the banks/debt servicers for these properties are having no problem running up huge “profits” on late fees, fines, etc. on lessees that have long jumped shipped and bailed/broken the lease. Good luck collecting, just more of that mark to myth!
I am one of the long-term unemployed. I don’t expect that to change because of my age. At some point I will get a minimul inheritence, at which point I will by several acres in the desert, and live out of a truck with a camper shell. I believe this will be the trend in the near future, like some kind of Steinbeck era, coming more and more into focus…
I see the same scenario where I am at. Private sector workers are much, much more cautious. I asked one CA state worker I know how secure he feels his pension is and the answer was basically “good as gold” as by law the state has to pay it. I have my doubts. I think state workers should be very concerned for their pensions. Looking around at the next generation of Californian tax payers or lack thereof does not inspire confidence.
What cracks me up is the reliable supply of inane comments to these articles that lay everything at the feet of “them overpaid gubmint workers and them overpaid teachers” followed with “examples” that are always anecdotal, made up, or distortions.
State employees are guaranteed their pension, and free health insurance,by law. Taxes will have to increase to pay these promised benefits.Many cities and school districts will face bankruptcy in the next 3 years, trying to pay the huge increases, from promises made by politicians, 20 years ago.see
pensiontsunami.com
A year ago, there was a lot of talking in media about commercial real estate crisis. Now no one is talking about it, like it has been blown over. Thank you, Doc for bringing it up. The retail sales may look better. But the bottom line (profit) has not improved at all.
I agree with el guapo on the theory. It is very likely. The higher income earners did their calculation and strategically defaulted their mortgage to free up cash. With no mortgage and no rent, they are happy to spend again.
Banks are bailed out. They are in no hurry to release the properties on hand. It looks like a recovery, at least until the stock market crashes again.
I know 3 people that work for the govt. Not one of them has a clue we’re in a recession. They’re spending money the same way they always have. One of them is $175k under water on her mortgage and doesnt care too much since she has zero fear of ever losing her income stream. Must be nice.
I was there a week ago. Lots and lots of closed & vacant businesses. I was really surprised that the “Surprise Store” was empty….among many many others.
PSPS, your claim doesn’t make sense as nnt one poster does what you say. There’s not one post that says the distressed SoCal real estate market is the fault of government workers. Is there anything worse than a point of view impervious to actual conditions or words which falsely claims the same of others?
I’m with the people who previously posted saying they are done with the housing market for the foreseeable future. The chicanery going on at all levels is mindblowing. I would have laughed in someone’s face if 3 years ago they were going to make predictions of all the BS keeping home prices inflated. It is very clear that lower home prices will not be tolerated by this current administration and the other powers that be. For all us responsible people waiting for a sane time to buy a house at an affordable price…forget about it for the next few years. I just hope we have another massive economic blowout sometime soon, this might be the only way to restore some order and common sense back into our world. I’ll keep renting, saving tons of money and enjoying life. If CA wants more tax money from me…I just might tell them to go eff themselves while I’m packing my Uhaul heading for Texas or Arizona.
No on is claiming that real estate problems are the fault of government workers.
We are only saying that they are not bearing their share of the load, via pay cuts.
Jerry Brown, our next goverrnor, signed the legislation making public employee worker unions legal. He is endorsed by most gov’t. unions, so he will not dare to actually stop the $100,000. a year pensions that many gov’t workers get. That means higher taxes for anyone working in the private sector.
The LA Times claims that prices are up 22%.
Make no mistake, govt is now the final bubble. The whole economy, that’s still alive, is being propped-up by govt intervention. If you’d have told me 3 years ago that they’d be doing this, I would have laughed at the idea. This cannot be sustained indefinately.
Wait I’m confused….you are bitching because the price of homes in SoCal is insane (agreed), but then turn around and say you are happy to keep renting and saving…..um, which one is it?
What I see here, is people bitching because THEY can’t get in the casino. People post all the time that they are going to move to Arizona or Texas but in reality, the 120 degree heat, or the mold growing in the basement always tends to change them plans.
Rent, hold out for sanity, and then if it gets to where it’s bearable…buy. If CA makes you that crazy…then indeed, move. I plan too as soon as I can retire.
Pensions are backed up by law…until California defaults, right? I don’t see how California doesn’t declare bankruptcy at some point. The genius in charge of Calpers (in 1998) based their pension entitlements on the basis of the Dow being at 25,000 today. Well, that’s dot com thinking and isn’t sustainable. It doesn’t matter what the law says (today), it can’t be paid. The math doesn’t lie (though some accountants have been known to fudge).
Swiller. You are correct on both accounts. Prices today in decent areas are still insane. Given that information, I will happily rent and save money for the next few years. Something will give sooner or later. It will either be lower housing prices here in Socal or me relocating to a cheaper cost of living area. In the meantime, I could care less if prices tanked another 20%, the state goes belly up or the big earthquake finally hits LA. See, being a renter does have some advantages.
“good as gold…” maybe not.
http://www.latimes.com/news/local/politics/la-me-firefighter-pensions-20100617,0,3681678.story
@El guapo
Agreed. At some point the algorithm fails and we’ll realize there isn’t any cheese in the cheese shop. Honestly, how many more Trillion-dollar bailouts will it take to derail the whole thing.
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