Real Homes of Genius: Today we Salute you Long Beach with our Real Home of Genius Award. 792 Square Feet for $109,900. Built During the Great Depression and Offered at New Depression Prices.

Did you hear that? Probably not because that was the sound of Treasury Secretary Hank Paulson’s bazooka shooting out a dud. The market on Monday simply reaffirmed what we all know at our core; housing is still a long way from any bottom and even though the Senate signed off on the housing bailout bill, not much is going to change except putting the American taxpayer on a bigger hook.  The market hit a bottom on July 15 of 10,962 and rallied to a high of 11,632 on July 23 for a gain of 670 points.  Yet in another 5 days the market gave back 501 points to stand at 11,131 on July 28.  The market today just had another rally based on “better than expected” drivel even though nationwide housing prices drop for a 22nd month in a row putting prices down by 15.8% nationwide according to the Case-Shiller Index.  This means more write-downs in the future but the market is trying to act like we are at a bottom.

Merrill Lynch on Monday after hours announced more write-downs to the tune of $5.7 billion and stated that it will seek to raise capital. Capital which only a short time ago it stated was not necessary. This is what CEO John Thain had to say in April of this year:

“(Fortune) Despite this quarter’s loss, Merrill Lynch’s underlying businesses produced solid results in a difficult market environment,” said Thain. “The firm’s $82 billion excess liquidity pool has increased from year-end levels, and we remain well-capitalized. In addition, our global franchise is positioned strongly for the future, and we continue to invest in key growth areas and regions.”

Apparently the global franchise means getting cash infusions from worldwide players.

When Hank Paulson made the bazooka comment, I suddenly had visions of Paulson holding a t-shirt gun, loading it up with cheap shirts, and blasting it all over the American public. The shirt reads, “I bailed out Wall Street and all I got was this crappy mortgage.”

It is easy really, to forget the actual reason we got into this mess. The pervasive psychology that home prices only went up. This was true until it wasn’t of course. Yet any person with common sense and a basic understanding of economics knew that we were living in a bubble. There was no regulation and enforcement of any kind. It was as if mom and dad had left two teenage boys for the weekend in a house full of liquor and the urge to party expecting to come back to a clean home.

The Miami Herald (hat tip J) has a great series on mortgage fraud. In what seems like a bad episode of Cops, these were the folks responsible for finding and helping borrowers fund their homes:

“When Scott Almeida walked out of federal prison and into the mortgage business, he took a gamble. He admitted on his license application that he had been convicted of cocaine trafficking.

Florida regulators — responsible for protecting borrowers from predatory brokers — could have rejected him on the spot.

Instead, they asked for a character reference: He gave them a note from his mom. They said he needed a reputable supervisor for his practice: He chose a guy he met in the prison visitor room.

They asked for a copy of the court file but never demanded the police report, which shows that he had been caught with a small arsenal of assault rifles and ammunition, in addition to the cocaine.

Their background investigation complete, regulators circled ”approved” at the bottom of the screening checklist, collected a $215 license fee and looked the other way.”

mortgage fraud

*Source: Miami Herald

Bwahaha! A note from mom. That is simply absurd. You can see the Three Stooges running around and doing some slapstick comedy while handing out licenses like free candy. What’s next, giving a credit card to a cat? Oh yeah, that actually did happen:

“(Australia) MESSIAH Campbell was considered a good enough credit risk to be given a card with a $4200 limit – which was surprising considering he’s a cat.

His Melbourne owner Katherine Campbell wanted to test the limits of her bank’s identity screening process and applied for the Visa credit card on Messiah’s behalf.

She was amazed when it was approved.

“I just couldn’t believe it,” she said yesterday. “People need to be aware of this and banks need to have better security.”

Cat

So now we are left with a disastrous mess and the mortgage kitty litter is all over the world. If you really want to get some serious perspective, the median priced home of the biggest state in the country California is now down 37.7% on a year over year basis. In fact, let us take a look at the top 30 zip codes in Los Angeles County with the highest year over year price declines:

California zip codes

*Source: DataQuick

As you can see, many zip codes in Los Angeles County have already broken the 50% year over year decline barrier. One zip code in Long Beach has passed the 60% mark and we will go hunting for a home in this area to see what we can find. In all, there are 270 zip codes in Los Angeles County over 88 cities; many cities like Long Beach and Los Angeles have multiple zip codes. If you want a break down of the list, here it goes:

> 60% decline 1 zip code

> 50% decline 11 zip codes

> 40% decline 29 zip codes

> 30% decline 76 zip codes

> 20% decline 134 zip codes

> 10% decline 198 zip codes

> 0% decline 225 zip codes

Number of positive zip codes 28 zip codes

17 zip codes with no data

Let us now go house hunting in the negative 65% zip code in Long Beach! Today we salute you Long Beach with our Real Home of Genius Award.

Built During the Great Depression for this Depression

Long Beach

This amazing “Spanish style bungalow” sits on a whopping 792 square feet. We are told there are 2 bedrooms in this place and we are offered a great piece of perspective photography. To show you how big this place is, a car is parked right in front of almost the entire length of the home. The ad tells us this is on a “quaint” street and the price is so low that you’ll “have some money left for a hammer and some paint!” for needed work. Need we say more?

The home was built in 1929 which of course is the infamous date of the stock market crash sounding the start of the Great Depression. When we take a look at one of the rooms, it looks like we are going to need that hammer and paint:

lb-room.jpg

This home is a foreclosure so what do you expect? The price tag may be right for a maverick investor. Currently it is listed at $109,900. That is right. A place in Los Angeles County that is a single family residence (yeah, technicalities) that is almost in the six-figure range. Now that is why this zip code is down by 65% in one year. Let us look at the sales history to see what shenanigans occurred:

Sale History

10/22/2004: $176,000

04/02/2004: $156,200

There was a lot of action on this place in 2004. The current reduction is 37.5% (amazing how it almost matches the state median price decline) but a far cry from the 65% drop. Given the market antics in California I wouldn’t be surprised to find a home purchased by a ferret with a $500,000 Pay Option ARM mortgage.

Current rents in this area go from $850 to $1,000. So is this a good investment? Not really even though prices are coming down and at least with this place we can run the numbers. So here we go. First, you will need to invest money in getting this place rent ready. Clearly you are going to need more than a hammer and some paint to make this place livable so that is money out of your pocket.

Let us assume you buy this as an investment. For investment properties rates are higher and normally require a minimum of 10% down. So let us use that assumption:

10% out of pocket: $10,990

Loan Amount: $98,910 (30 year fixed at 7.5%)

PITI: $805 per month

Average Household income for area: $31,053

You are barely cutting it here. Keep in mind that the California unemployment rate is 6.9% and quickly rising. Lower to middle class areas are the first to feel the pain and rents will be coming down in these areas. After all, if people aren’t working it is hard to make the rent payment and many are living paycheck to paycheck. Keep in mind you have already invested $10,990 and you can expect negative to no appreciation for the next few years.

It is apparent that there is a major housing crash in California. Those thinking that we are at a bottom need only look at the list above and this current example (or any of the other Real Homes of Genius homes) to understand that we have further to go.

Today we salute you Long Beach with our Real Home of Genius Award.

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9 Responses to “Real Homes of Genius: Today we Salute you Long Beach with our Real Home of Genius Award. 792 Square Feet for $109,900. Built During the Great Depression and Offered at New Depression Prices.”

  • Sally in Dallas

    Well, the reason the stock market is up-and-down is because oil investors are pulling their money out of oil and into stocks on a daily basis depending upon what oil is doing. When oil goes up, they take their money out of the stock market and put it in oil futures. When oil goes down, they take their money out of oil futures and put it in stocks. Why Wall Street? Because they are trying to recoup some of their losses. They don’t intend to stay in Wall Street; they fully expect to sell their shares once oil starts inching upwards again…which it will at least by October because that’s when the first shipments of home heating oil arrive in the US — Maine has almost 100% heating oil usage. Once those purchases are made, oil is going to skyrocket. Strange how all of this seems to point to October as being the date of the great stock market crash of 2008.

    As for the real estate, even North Texas (the land of milk and honey with the newly-discovered barnett shale gas field lying underneath Tarrant County and enriching anyone who owns a home), even North Texas is having a problem. I noticed that there is a foreclosure in Garland, Texas — $165,000 home going for $70,000. Of course, with foreclosures you don’t know if the prior owner stripped the home of everything before he left. I think they should make it a crime for people to strip homes like this. I know there is the thinking that “fixtures” aren’t part of real property, but this seems like clear-cut fraud to me. The plumbing fixtures and the appliances are part of the package of the home you buy; why shouldn’t they stay with the house?

  • Market down 240 yesterday and up 270 today.
    This is a game. I knew it would go up today, and the early risers would have a good day. I’m a late riser.
    There was a guy on CNBC who swore that the market hit it’s low July 15th, and gave the exact time. He sees a bull market here on out.
    The earth is like a great big Rosach test, and everyday starts anew, with the same bewilderment, masquerading as knowledge, and the people at CNBC actually make a living, celebrating ‘groundhog day, each day.’

  • That’s some ‘spanish style’ home there. What’s it got, three rows of spanish tile as part of a faux facade and then tar for the rest of the roof. Looks like its been leaking too from the looks of those walls! That might be the real economic power of this house. Buy it and then sue for mold! I understand SoCal juries can be very generous for mold claims. As to Wall St. and the stock market. Sheesh! Can anyone imagine how you rally when the proper news of the day is home prices continue to slide, Merrill Lynch dumps $30 billion ” worth’ of its assets for 22 cents on the dollar and then has to loan the ‘buyer’ 75% of the money to pay for these assets? The horror is that the stuff Fannie and Freddie are holding in their portfolios or that the banks have used as collateral with the Fed for their loans may not be all that much better than what Merrill unloaded last night.If so they are all insolvent yet they soared on the stock market today.

  • What a beautiful dump!!! That’s the kind of house one can find here in Cleveland, Ohio except they are selling for $500-$2,000 a pop. Yes, that’s right, these are actual sales, not monthly rents.

  • There are some areas in Long Beach that make Compton and Watts look like Bel Air. This house seems like it’s in one of those areas. The only thing positive about this place is that you can can use your car as a house alarm if you park it close enough to your front door. That price still seems amazingly high if you ask me. I expect those bungalows to drop another 40% percent before this is all over. I guess we will have to wait another year or 2 before we start seeing affordable housing in decent livable zip codes.

  • WNBC TV here in New York just reported that house prices in the Hamptons fell 12% from May of last year to May of this year. Gee I wonder why.

    Anyway I must ask, would this house pass inspection by the Los Angeles County housing authority or the equivlant agency in Long Beach for low income residents? I would say no, but who knows.

  • Anyone seen the Visa quarterly earning report?
    41% profit increase…
    Remember that VISA and MC make their money from the processing
    fees charged to merchants. They don’t actually loan the money,
    the banks do.

    They say that the profits are due to the increase in the european market…

    Yeah right… it’s because this nation is charging themselves to death
    with “easy” money. Can’t pay your bills anymore? Charge them!
    Give it another 6 months and then this fountain of money will cease too
    when the cards are maxed out.

  • > When Scott Almeida walked out of federal prison and into the mortgage business, (…) Florida regulators — responsible for protecting borrowers from predatory brokers — could have rejected him on the spot.

    Ex-cons have to work somewhere. I would object to a mortgage broker dealing cocaine, but why shouldn’t a former cocaine dealer broker mortgages after his time in jail? It is not like they admitted him to the bar or let him work as a pharmacist. By the way, how did he do as mortgage broker? There was no mentioning of any further crime, so I assume he tried to peddle mortgages like every other broker and is now out of work as many others.

    > they asked for a character reference: He gave them a note from his mom.

    Now, that is ridiculous, but not his fault.

  • In the city of long beach 90805 a home was listed the other day 3-1 2 car garage
    1000sq ft 5000 lot. Sold 6-06 for 510. It was listed at 189. 63% off.

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