Real Homes of Genius: We Celebrate our 100th Real Home of Genius! Reality comes to Malibu California. The Decade of the California Housing Bubble through one 925 square foot California Home.

Today we are going to celebrate with a very special Real Homes of Genius Award to a home in Malibu California.  This is our 100th featured home since we started blogging a few years ago!  We have come full circle by looking at poor beat down homes in the inner city years ago to now prime homes in coveted zip codes going down in flames.  Before we look at the home, let us go over what is going on in the overall economy.

Monday was a brutal day of job layoffs with 71,400 job cuts announced.  At that rate, we’d lose 2.2 million jobs in January alone!  Yet that is only one day and the market being delusional like many home owners in prime California locations, we saw an increase in the market even with brutal earnings and job cuts!  We are back to the mythical world where cutting 71,400 jobs in one day is actually good for the economy.  So if you think the world economy is decoupling, you are living in an alternate reality devoid of data.  Consumer confidence also came out today showing that we are at a record low while we have master Ponzi expert Bernard Madoff getting his home in Florida TP’ed.  Another swindler, Art Nadel from Florida after being on the run, which is odd for a 76 year old man, finally realized he needed to turn himself in to the FBI.  The creeps are coming out in full force.

Today we got the individual state unemployment numbers and they are absolutely abysmal.  California gets bumped from the third spot:

Michigan:                    10.6%

Rhode Island:             10%

South Carolina:           9.5%

California:                   9.3%

However, 6 states now have 9% or higher unemployment.  That is why the 2009 California forecast for the economy is not going to improve.  Take a look at the overall country:

nation unemployment rates

The unemployment situation is getting tough for many states and there are now very few places to hide.  Yet the market is cheering this news because they are now drinking the bottom calling Kool-Aid.  This mass herd delusion is the most prominent here in Southern California.  Today we are going to examine Malibu (think Barbie) and the massive reality check prime areas are now getting.

Today we salute you Malibu with our Real Homes of Genius Award.

Malibu Rum and Barbie Can’t Save this Market

malibu home

For those of you who don’t know, Malibu is one of the most prestigious areas in Southern California.  You don’t get more prime than Malibu.  The median price of a Malibu home is over $2 million.  The 90265 zip code is sought after by many just like the 90210 zip code.  Yet even Ed McMahon can tell you personally that this housing market will not bow down simply because you have a recognizable zip code.

I must forewarn you, I’m going to utter some words that many Southern California wonderland participants have never heard.  This above home is a Malibu Foreclosure.  Sacré bleu!  That is right, this 925 square foot home is a bank owned home in Malibu California in that supposedly indestructible 90625 zip code.  With 1 bedroom and 1 bath and being built in 1927, before the Great Depression, I really don’t understand why this home isn’t flying off the market like a plate of hot pancakes.  The home has been on the market for 92 days and still has no buyers.

First, Malibu California is a tiny western L.A. County city with 12,575 people.  The city is a 21 mile strip on PCH (Pacific Coast Highway) overlooking the Pacific coastline.  Hard to beat some of the scenery:

malibu air view

Yet you’ll be fascinated by some of the demographics here.  The median family income for Malibu is $123,293.  And believe it or not, 7.6% of the population here falls below the poverty line.  One thing you learn about L.A. is not everything that glitters is gold.

So back to our wonderful foreclosure in Malibu.  If you want to understand the mania of a housing bubble we need only look at the sale history of this home to see herd mentality at work:

Malibu Price history

This home has sold 5 times within this decade before being foreclosed.  At the peak, it sold for a stunning $839,000 in 2005.  The current asking price is $589,900,a 29.6% decline in 3 years.  This in a supposedly untouchable zip code.

But even if we use 2000 as our baseline, this home is still almost twice as much as the sale price at the start of the decade.  And with recent sales data, we already know that many counties in Southern California are back to 2002 levels with the trend pushing lower:

Southern California Housing Prices

The Case-Shiller data came out today and the numbers are once again showing lower prices:

Case Shiller Index LA

I just constructed a new chart with the new data out today and we are now back to 2003 prices for L.A and Orange County combined since this is the MSA that the Case-Shiller index looks at for this area.

According to Case-Shiller data, we are now off by 35% from the peak in September of 2006.  That is a significant decline and there are still no signs of slowing down.  Interesting that this Malibu home is being sold for 30 percent off.  Maybe they are looking at the Case-Shiller data as well and are realizing that if they don’t move, prices may continue lower like what happened in the decade long stagnant Japan market housing market.

And that is exactly what happened with the lost decade in Japan especially with much of the data looking at Tokyo and regional plays that went off the charts.  The rest of the country felt the pain but falling from a higher place is sometimes even more painful.  The prime areas have a long way to go down.

This is the current climate we are in.  Earnings are missing like a bad archer and job cuts are being announced every day.  We are in the bottom caller area and this is a bear market lull.  If you think $589,900 for a 925 square foot home is a deal, be my guest.  I think most people are waking up from their bubble slumber and are realizing that austerity is here whether they want it or not.

Today we salute you Malibu with our 100th Real Homes of Genius Award.

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19 Responses to “Real Homes of Genius: We Celebrate our 100th Real Home of Genius! Reality comes to Malibu California. The Decade of the California Housing Bubble through one 925 square foot California Home.”

  • I enjoy your site, Doc. Every time I read your latest article, I am stunned that you are still part of a minority. MSM and most Americans are still firmly in denial, either believing the bottom is in or the rally is just starting again.

    The 100th Home of Genius was flipped five times at an average price of $563k. That represent $170k in broker fees as well as taxes, movers fees, renovations, etc. This place will probably end up being sold at or below the 2000 price and the buyer will live there for seven to ten years. So, for the next decade, the total input to the California economy from this “mansion’ will drop to about $25k, ignoring the losses to the bank.

    I live in the south of France where the market is just starting to fall. It’s fun to hear all the wonderful SoCal arguments in French (“On ne fait plus de terrain.” “Tout le monde veut vivre sur la Cote d’Azur.” “L’immobilier est le meilleur investissment et ne baisse pas.” and so on). They also argue that prices can’t fall since there is no “subprime” in France, ignoring the change in the price/rental ratio from 150 to 262 (at the peak).

    It’s going to be fun watching it collapse and listening to the rationale for the bottom once a week for two years.

  • Let me see. If I put down on this home 100 grand then my monthly payment will be about $3300 a month. It is a one bedroom, one bath home. Now in order to live in this palatial palace under current guidelines I have to be bringing home $5500 a month which equates to approximately $90,000 a year.
    Does the bathroom have a shower? I am thinking there is an oil well on the property.
    Now, that last piece of this puzzle will be what lender will loan anybody 569000 for this property if they cant sell the loan to another sucker (ie. the government). This house is worth no more than 300000 on its best day. In 2010 it will be worth 250000. If the lender was forced to keep the loan, then it would be worth 200000.

  • Dear Doctor Bubble, First I would like to say that your site and insight are great.

    How will the Foreclosure relief bill that seems close to passing impact the declining prices and what will it do to the inventory? It would seem a bailout of this magnitude would have some impact on your predictions.

    I am looking to buy my second house now and would like to upgrade to a nicer neighborhood in Ventura County. Even with a budget of 600k I am finding this difficult now. The listings seem to be dropping and the prices holding steady. What gives?

  • Is Malibu home to the Million Dollar Meltdown? It’s neighbor, Pacific Palisades is glutted with inventory and has already experienced Million Dollar Meltdowns. My guess is, some got into these properties with Option ARMs, that couldn’t afford them. There is very little moving, and too much inventory in Malibu. In order to sell, they will have to drastically reduce, or hand it back to the bank.

    The high end, especially on the Westside, is taking it’s hits.

  • Congratulations, Doc, and I’d like to wish you 100 more RHGs…but wish even more there’d never be another. Since the latter won’t happen, many happy returns.
    I agree with Expat, who recently got savaged on Calculated Risk recently for being part of the minority of the awake, and making no bones about it.
    Fees are the story. Fees and interest. These are the lifeblood of the debt-based fiat currency and fractional reserve systems. The California economy, among others, has been a channel of wealth concentration upwards. These “booms” eviscerate economies, while posing as periods of prosperity.
    Please note re: the map of unemployment rates that these rates as reported generally exclude farm-related unemployment. The low figure for some of the “bread basket” states is likely due to the fact that out of work farmers and farmworkers aren’t counted. These states will show higher unemployment rates where they have large urban areas, where more of the actually lost jobs are counted.

  • @Expat

    Stunned indeed. But dogma trumps facts in most people’s minds. People got so mad they wanted to kill the heretics in the dark ages. The ‘earth is not round’, ‘the earth is the center of the universe and the sun goes over the edge and comes back up on the other side’, ‘unfettered capitalism solves all human ills’, real estated always goes up’, ‘the fed is in control’, ‘Reagan/FDR was an economic genius’, ‘deficits don’t matter’.

    Once an idea is embraced, no amount of evidence or logic will change the stone-headed. They still think this can all big fixed with a stimulus package, like not enough debt was the problem, or banks just needed more liquidity, or more tax cuts, or more FDR programs. Here’s a great idea:

    People are starving the the 30’s so we’ll pay farmers not to grow more crops, then that will prop up the prices. But they’ll cheat so we send out guys to check on the farmers. But the farmers will bribe the feds, so we need to send out guys to check on the guys to check on the farmers. Now we have farm subsidies paid by taxpayers so the taxpayers can pay higher prices for food…WTHeck??? Tough times make desperate men make decisions that are even more foolish than the ones that got them into the trouble in the first place…

  • Love the blog Doctor.

    I just wanted to point out that the unemployment rate is probably grossly understated in some areas. I moved out of Cali a few years ago to Hawaii, and the number of people who are underemployed/unemployed here is very large. I’m thinking this may be quite common in rural areas where families live together and pool resources. Note that the Dakotas and West Virginia have low UE rates along with Hawaii. Also, a lot of jobs are paid in cash (e.g., yard work) so their work load is lumpy and wouldn’t show up in the stats.

  • @Compass rose: Wow, I feel almost famous.

  • Thanks Doc for another good read.
    Things are only getting worse out there. See Jumbo loan defaults are up 300% from a year ago. Also read Pres. may need $3 trillion to bail out the banks.
    A interesting view by Jim Quinn @ Financial Sense.

  • It’s interesting that the MM is starting to slowly wake up to what the good Dr. here has been saying all along. Thanks again Dr. for putting so many pieces of the puzzle all together here and for being spot-on in most (if not all) of you predictions on the direction this is all taking. Now that you’ve ventured a little further north I wonder if you wouldn’t mind tackling a town just a short drive up the road? I’d be interested to hear your comments on one of the last holdouts Santa Barbara 😉

    [url=]Banks Sitting On An Inventory Time Bomb[/url]

  • Hey Doc,

    Great blog, my first post to the community.

    I’m following your advice and not buying my 1st home in 2009, unless an absolute steal comes along that I just can’t pass up.

    My original intent was to go for a Single Family Home, something in the neighborhood of $300-$315K. While my price remains relatively frim, I’m also looking at perhaps buying a mulitple unit property. Living in one and renting out the other. Any thoughts on this?

  • I believe 4 out of 5 homes on the market today are RHOG candidates. This one is a perfect example:

    Who the hell would buy a 3br 1ba home for 730K.

  • I think prices haven’t fallen fast enough because of the “ghost inventory” out there. Recently realtytrac has released a bunch of statemements that only a 1/3rd of foreclosed houses have been put on the market. It seems that if a bank has 30 similar homes for sale in an area, they only list 5 and hold onto the other 25 so that they don’t flood the market. Then when one sells they take one out of the ghost inventory. Great use of taxpayer funds BofA/Countrywide and Citi!!!

  • @Joe,

    No reason to expect honest statistics from the unreal misstate cronies, is there? Still a shocking number–I’d expect a little fudging, not a bail-out sized ruse…although I can’t think of why not. It’s like walking on a partially frozen lake at night. You just don’t know where you stand, but you have to keep walking.

  • Just read this from Bruce Vanderveen (seeking alpha):

    The US Dept. of Treasuries OCC’s Quarterly Report (see page 23) shows just how deeply the mega-banks are into derivatives. Bank of America has assets of $1.836 trillion and derivatives of $39.979 trillion, (mostly swaps). With the demise of the Shadow Banking System (non bank financial institutions), trading derivatives is much more difficult. If marked to market, one wonders just how much of a loss would be realized in this $39.979 trillion portfolio. Nobody, who will talk about it anyway, seems to know. It wouldn’t take much to wipe out $1.8 trillion in assets. Not surprisingly, there is a major confidence problem. With a continually slumping housing market, commercial real estate problems accelerating, increasing credit card debt defaults and a deep recession that’s driving foreclosures to record levels, you can only guess. Investors don’t like guessing.

    Just one bank–$40T in “Financial Weapons of Mass Destruction”…T and that rhymes with P and that stands for pool—cesspool that is…fortunately it’s only vapor money–not even backed with air.

  • Comrades,
    I finally realized what this greek tragedy of a crisis looks like to: remember the tsunami in SE Asia when many of the locals went down to waters edge to admire in wonder as the water was drawing out to sea only to be horrifically overcome by the oncoming wave? We are witnessing the financial waters rush out in amazement and if we don’t find higher ground soon (I mean really soon), we are toast. Thank you Dr. HB for sounding the alarm.
    And I can’t pass up an opportunity to again share the stupidity that is the NAR: “Lower interest rates have had only a modest effect,” Jed Smith, head of quantitative research for the Realtors’ group, told about 300 people attending the event at the Seminole Hard Rock Hotel & Casino. Relaxing high credit standards, that would have a greater effect,” he said. -From the Florida Sun-Sentinel. WOW, if only we could bring back the days of loose money and irresponsible lending! Mr. Smith, I nominate you for the “Real Economist of Genius” Award!

  • @blutown
    Nice you got out to a comedy club. I could use a laugh myself about now. It’s like curing a Morphine addiction with Heroin…

  • what is a RHOG candidate?

  • what is a RHAG candidate?

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