Real Homes of Genius: Riverside 40 Percent Off! 980 square foot home for $209,900.

Much has been said about the Inland Empire of Southern California. In fact, the Inland Empire is the largest region in Southern California and includes cities such as Ontario, Temecula, Riverside, and San Bernardino. Riverside and San Bernardino Counties have over 4 million people combined. We also know that this area of Southern California is overbuilt and is facing the wrath of the housing downturn harder than many areas. There are many who once said that Southern California would never be overbuilt and for many years, this seemed to be the case. However, for those that do not live here in Southern California, this is a massive concrete jungle and a commute from one county to another can take up to two to three hours depending on the ever present variable of traffic congestion. Yet many folks in the pursuit of the elite housing ownership club and real estate propaganda guidance, decided that they would tolerate large commutes for owning a piece of land regardless of the mortgage they would have to support. Some just wanted a place for their family. Others were infected with the disease of Flip this House neurosis (FTHN) and Property Ladder delusion (PLD) and thought anyone can make tens of thousands simply by buying a piece of property, slapping on some paint, a touch of Feng Shui, and next thing you know your bank account will be drinking from the easy cash fountain. As we discussed in the previous article, every county in Southern California is now negative year over year. San Bernardino and Riverside have been the hardest hit counties declining 9.6 percent and 15.1 percent on a year over year basis. To highlight the magnitude of this once in a lifetime South Sea California Bubble, today we salute you Riverside with our Real Homes of Genius Award.

ImageShack

Today’s home takes us to the city of Riverside California. What was once only in the realm of housing legend, we are now seeing homes selling for $200,000 in the mythical place called Southern California. Housing pundits once pondered stories over fireside chats about, get this, homes selling for $200,000 and if you were lucky, you may spot the ever illusive $100,000 home. Sometimes legends become reality. This 980 square foot McMansion has 2 bedrooms and 1 bathroom. Taking a look at the picture we are seeing the beautiful technique of the Feng Shui yellow lawn. Talk about the Midas touch! We also see an amazing technique of photography called “make this house look bigger than it is” which has been employed on many other Real Homes of Genius.  This place is a bank owned property and ready to sell.

Let us take a look at some pricing action on this home:

Price Reduced: 10/09/07 — $279,900 to $249,900

Price Reduced: 11/14/07 — $249,900 to $209,900

So where is the 40 percent discount? Well already, since the home was listed in ancient October, it has dropped 25 percent in one month! This just goes to show that banks are truly motivated sellers. Even if current sellers suffer from FTHN or PLD, banks do not and need to move inventory fast. They realize that no ceramic tiles or free tickets to Hawaii are going to sell a home except rock bottom price. Plus, they’ve been backhanded by Wall Street and no one wants to buy stuntman mortgage products that are so dangerous, you will need a helmet before signing the final page of your escrow document. Another beautiful thing about transparency is that it is very easy to see what a place like this sold for so no current seller can snow you over. Also, historians will be going through property tax and sales records and writing about people in Southern California with anthropological rhetoric such as, “once upon a time, people thought it would make sense to put all their disposable income into shelter.” Let us pretend that we are historians and let us dig up the sales history on this home:

Sale History

08/08/2006: $350,000

04/10/2003: $125,000
We all realize that this bubble is popping and for all the housing pundits that think this is a minor bump in the road to perpetual housing heaven, take a look at the sales history on this home. First, the person that sold in 2003 sold at a reasonable price pre bubble mania. In a short three years this home nearly tripled in value and as you can see from the picture and size of the home, not much was added or done to justify this price. This is what happens in bubbles. Prices disconnect from any fundamental rules or economic laws and prices go up matching the greed and irresponsibility of many involved. So here is where we start approaching our near 50 percent discount in Southern California. And this is a discount in only one year! From the peak of $350,000 to the current price of $209,900 this home is now selling for 40 percent off. A discount of over $140,000. Now I know some of you have e-mailed me how it is impossible for prices to fall by 50 percent. Well here is a 40 percent drop in one year. Does this apply to every region over the country? Of course not. As you know, I invest out of state in properties that cash flow. In fact, there are many places that have stayed relatively immune from the housing bust. Do I think housing will tank 90 percent? Absolutely not! I’ve never said this. With over 180+ articles I’ve been beating the “housing should reflect local incomes and rental/lease rates” drum for over a year. That is why when I get e-mails from people looking to buy and they argue that sellers still don’t want to drop prices, just wait or go and take a look at bank owned homes. This is where the true deals are at. It took me less than an hour to find a place that was 40 percent off. I’m shocked that some housing pundits still want to believe that housing will be back in its glory days. Upton Sinclair had it right when he said, “it is difficult to get a man to understand something when his salary depends upon his not understanding it.” Plus, prices aren’t going anywhere except down so there is no pressure to buy. We are now entering into a true buyer’s market.

Amazingly when you look at comps in this area or estimates for this place, we get a range of $300,000 to $350,000. This is the problem of using recent sales as a comparison tool because this is a lagging indicator. In a nutshell, most homes are valued by what recent homes in the area have sold for. You can divided the price by square foot and compare it to your current home (plus or minus upgrades) and you should arrive at your price. Well you see the error in this pricing mechanism. If all homes in the area that sold were sold at bubble prices that means that you are using inflated values to value your current place. So how do you value homes in declining markets? Simple. You use local area incomes and lease/rental rates. I know most housing pundits hate using these historical rules because by default, this will slash prices by double digits in many parts of this country but that is what is necessary. Whether they want to do it or not as you can see from this example, banks will lead the way because the REO inventory is only in the first stage and they need to unload homes as quickly as possible to make room for incoming homes. Think we are at the bottom? Take a look at these two charts and you’ll realize we are nowhere close to bottom. The silver lining in all this housing mess is that finally home prices will reflect local area incomes and provide families the opportunity to buy homes without taking on financially irresponsible loans. It will also instill the virtue of saving since no money down deals will slowly start to disappear as credit becomes tighter and tighter. Want to buy a home? You’ll need to strap down and save. Anthropologist studying the past call this buying what you can afford.

Today we salute you Riverside, with our Real Home of Genius Award.

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15 Responses to “Real Homes of Genius: Riverside 40 Percent Off! 980 square foot home for $209,900.”

  • FTHN and PLD are definitely implicated in this matter.
    For 4 years I’ve been watching flippers on TV, make incredible amounts of money. Every stupid idiot would get into trouble with their timelines and their budgets, and I would think to myself, ‘this idiot will lose everything and take down his entire family with this stupidity’, but at the end of each half hour or hour episode, the person would successfully sell his house and make a huge profit.
    This same scenario was seen by millions and millions each week, for 5 straight hours on Saturday cable TV.
    No wonder everyone wanted in on the action, but as you correctly pointed out last week, only ‘now’ are we starting to see reality set in, and that the flippers are in big trouble at the end of each episode.
    It’s hit or miss, if they sell the place – or have to hold it, or lose it.
    I find it infinitely more interestingly to watch these shows, nowadays.

  • Expect a price of $199,000 within days. Hehe…The Golden State of brown lawns. How long will it take all of the crap to pass through, once the bottom has become unlatched?

  • Oooh! That Oxnard place is much more my speed. I drove through Riverside once in August in a car with no A/C….

  • There are plenty of homes in Riverside that have dropped under 200K. Some of them are actually decent looking places compared to most Homes of Genius. This one for example is listed for $175 as a short sale. This is 55% off the last sales price of $385K

    http://redfin.com/stingray/do/printable-listing?listing-id=1262545

    If you go out to MoVal, Perris, Perris etc you can find plenty of homes under 200K now. Last year finding something under $400k was damn near impossible. But now you can get a decent starter home under $200k. Like this one, decent house in a ok area of MoVal for $189

    http://redfin.com/stingray/do/printable-listing?listing-id=831334

  • @ sobeit
    Dead on, and directly to the heart of the matter. And while this is going on, those who exercised financial caution were looked upon like the sucker by people who’s status as “big shots” go back about as far as the ____ _____ real estate pitch they sat in on at the _____ hotel (names redacted to protest our host the Dr)

    @ 950 sq feet of Milk and Honey.
    I can see 125 as a fair price. Probably 150 since it’s in Neverland. A little cramped for me, but OK if you don’t mind living in a bee hive.

    @ Dr.
    It’s sad, but it occurs to me that with the prices you’ve been showing us, we’re about to the point where you could compare the prices to that of the ultimate in No Housing: living in a hotel.

    A quick search on the internet shows me hotels in LA where you can get two rooms for about $120 per night= $3720 per month. Plus they’ll do the vacuuming, make your bed, and provide you with a fresh copy of USA today each morning. If you deduct the free continental breakfast from your food budget, you’re darn near operating at a profit. 

    And think of how cool you would look when you’re at parties. You’d be just like Dean Martin and Frank Sinatra; the hippest cat in this whole hip town.

  • 2003 was definitely part of the bubble years. The debt unwind is just starting. Expect 2003 prices to come back, hopefully that’s where they will stop.

  • Malcom, I actually did the living in a hotel thing for a few months, and it’s really not that bad. If you haven’t tried it, do – you never know, you might love it. A few advantages of hotel living over mortgage-debt-hell:

    1. You accrue frequent guest points at one of the big hotel chains and end up being able to take free vacations, or just use the points for a free week’s rent every once in a while. (Let me tell you, ninety days in a Hilton in a year will get you a lot of HHonors points – I’ve spent a free week in Hawaii, a free week in Jerusalem, two in Tokyo, and soon another.) Plus you can get even more points paying your bill with an AmEx! (Which you then pay in full at the end of the month, hopefully.)

    2. You’re not paying when you’re not there – so when you take a vacation, or travel elsewhere on business, there’s no rent or mortgage for space you’re not using while you’re gone! If you travel regularly even if not a ton, this adds up more quickly than you might think. Sometimes, the wife and I go back and forth from SoCal up to her family in Santa Cruz twice in a month, for a couple of nights at a stretch. If we were in a hotel, we would not be double paying for those nights by paying rent for our place down here and also paying for a hotel up north.

    3. Some of the hotels will actually give you a decent breakfast every morning – not that you should necessarily be eating bacon and eggs every day, but even a couple days a week, this adds up, cost-of-living wise.

    I may be crazy, but sometimes I miss it…

  • Hey Doc,

    Love your blog and, specifically, Homes of Genius! As someone that has lived in Orange County CA since 1999 and managed to not drink the kool-aid, you’ve kept me solidly grounded. I thought prices were crazy in 2003 when they started to surpass rents… I’m a PROUD renter now.

    How about a “Real Homes of Genius” update? Are any of the home from the last year still for sale? back on the market? if so, what’s the price NOW? How many past “homes of genius” that didn’t sell ended up as REO?

    It would be an interesting read!

    Keep up the good work!

  • @ JimAtLaw

    And yet, in the “old days”, before the math (and the world) was turned upside down, living in a hotel would look as financially crazy as doing your grocery shopping at 7-11.

    Hey, if it works it works; but don’t ask me, I’m not normal. My brother refers to me as a “minimalist”. My theory: If you can only sit in one chair at a time, why have more than one chair.

  • Over $200/sqft to live in the armpit of Southern California? That’s no bargain!

  • What a great value. Truly a real home of genius indeed!

  • I almost put an offer on a $275K 2 Bedroom REO in Los Angeles this weekend – then I thought about how disappointed I’d be to miss out on the coming year’s fire sale in real estate. I’m more than happy to keep renting for the moment. Besides, if I wait long enough I will actually be able to buy a place in a nice neighborhood!

  • “Stuntman mortgage products”

    The best line you have come up with yet!!

    Keep going, your info and writing style are tops. :)

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