Real Homes of Genius All-Star Edition: Today we Salute you Compton. Investigating 3 Blocks of Housing Bubble History and Hundreds of Thousands of Dollars Lost.
Much was made on Tuesday that the Case-Shiller Index showed a positive increase for the first time in many years. This of course was for nationwide data and did not take into account seasonal adjustments. However, there is noticeable change going on. Yet the Los Angeles and Orange County data point was still trending lower. Not exactly good news as we look into the exotic mortgage zoo with our Alt-A and option ARM waste. On Monday, the big jump in home sales was led by the median price dropping by $13,000 but the media was spinning this as some kind of sign that housing bubble version 2.0 is around the corner.
I’m surprised how quickly some people are capitulating and thinking that somehow the market has suddenly turned around. Didn’t our Governor just sign a budget to patch up the biggest deficit in the history of California? The disconnect is amazing. One simple question people fail to answer is what jobs are going to replace the 6,500,000 jobs lost since the start of the recession? Keep in mind many of the lost jobs were good paying jobs. Here in California, you had many people especially in the mid to upper priced areas buying overpriced homes with over sized incomes because of the bubble. You had mortgage brokers, agents, bankers, and others connected to the housing industry that believed in the housing bubble and paid top dollar for a bubble home. Unfortunately, they are facing a double-whammy with home prices plummeting and incomes drying up. So if you want a simple question as a litmus test it should center on what industry is going to compensate for the lost housing industry? I have yet to see a good argument about job growth.
Before I move on to the article investigating an interesting story of three homes on three blocks in Compton, I want to say thank you for helping this site reach the 5,000,000 hit mark. Many of you have been reading this blog for years and I sincerely appreciate the long time loyalty. Many of you may recall when we were a small minority in the middle of California bubble mania. As we go forward, I will do my best to continue giving you an honest take on what is going on. If I have learned anything in these last few years, it would be that you as a smart consumer of information should verify data and arrive at your own conclusion no matter who is saying what or where the large crowd is going. I am appreciative of all the e-mails and from all the other dedicated bloggers who have been working so hard to create an alternative outlet for information. With that said, let us now continue to the article.
Tip #1 – Please Refrain from Using M.S. Paint for Real Estate Ads
We’ve discussed the need for agents to use better photography in advertising real estate. One common theme in Southern California is garbage can photography where agents simply leave the garbage can in the photo of a home that is selling for large amounts of money. Aside from the psychological association between garbage and a home, there are many aesthetic reasons for not doing this. Beside, how much work does it take to get out of the car and move the bin?
Well this home in Washington State highlights a new kind of real estate ad. It would appear that the grass is edited using Microsoft Paint or a similar photo editing software. Now, I don’t have anything against MS Paint but I’m not sure that I would use it in editing the lawn on a $350,000 home in this current market. This is like you having the ability to own only one family photo and you electing to go to your local strip mall and taking a picture on a bear rug with a waterfall background. Either way, I was surprised to see this. I did a double take but zooming in it becomes rather obvious:
I guess nothing surprises me anymore.
I spent some time looking at a small area in Compton. In this three-block region, I found three homes for sale that all tell the story of the housing bubble but also of easy finance. Before we decide that loan modifications are the way to go, how about we pause and examine what really happened? Here is the map of the area with the three homes:
Today we salute you Compton with our Real Homes of Genius Award.
Compton Home A
It didn’t take much time to get our first home using garbage can photography. This 711 (not the store) square foot home is selling for $53,000 and isn’t listed as a foreclosure or short-sale. A $50,000 home in Los Angeles County. Now before we get too excited that prices are making sense, let us look at the sales history:
*Transaction data unclear
Some of the transaction data is unclear resulting from refinancing, transfers, or other recordings but the November 2007 price was a sale. This home sold for $357,000 less than two years ago. Who made this loan? Have you noticed some silence regarding the public-private investment program? It was initially slated to start in July but we have heard very little on this front because the entire program is a sham and would result in many toxic loans jumping into the pool that will be backstopped by the taxpayer. If you didn’t do the math, the price drop on this place amounts to 85 percent in less than two years.
Compton Home B
Another case of garbage can photography. This home is larger at 1,280 square feet and has 3 bedrooms and 2 baths. The home was recently listed at $131,700. This is a bank owned home. Let us look at some sale history to see why the bank now owns this place:
01/22/2009: $147,435 *
12/13/2004: $288,000 *
04/25/2001: $131,000 *
11/07/2000: $139,526 *
*Transaction data unclear
We have a tremendous amount of action here. On this place, we are seeing a lost decade in home prices. We are below the 1999 sale price. Who really knows the story on the remaining transactions but these are the kind of homes that are all over Southern California.
Compton Home – C
Now here we have fence lens photography. You would think that you would have a better picture for a home selling for $180,000 but this is it. This is a 940 square foot home but once again, we see lots of activity on the home:
04/13/2009: $88,000 *
02/17/2009: $115,758 *
06/12/2006: $370,000 *
05/10/2004: $226,000 *
01/30/2003: $44,000 *
*Transaction data unclear
What is fascinating is that from 1990 to 2000 sale and record activity is largely not present or very tiny. Yet all of a sudden in this decade, you have multiple transactions occurring. If we look at this place, the last action was in April for $88,000 yet the asking price is $100,000 above that. This home is only a few blocks away from the slightly smaller 711 square foot home selling for $53,000 and the much larger $131,700 home B.
What should become apparent to you is this; the homes that will move are lower priced. Some times the lower price is much lower than many would have imagined. This data will be factored in future comps thus depressing the area home prices. Many of these areas are dominated by foreclosures (still). Now imagine what a few foreclosures in a mid to upper priced area will do for comps? The Alt-A and option ARM wave will do the same thing as the subprime loans did in the lower priced areas which is push comps much lower. It will lower prices and if agents use garbage can technology here, they are going to be in for a tough market.
Today we salute Compton with our Real Homes of Genius Award.
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