Real Homes of Genius Flashback: Looking back at Lakewood California. $105,000 Loss.

07 02 2008

Real Homes of Genius Flashback: Looking back at Lakewood California. $105,000 Loss.

Posted by: in Real-estate news

Inquiring minds have been asking, where do Real Homes of Genius go when they get their wings? Now that we know that many people that are losing their homes are not the poor family in a $150,000 home struggling to make ends meet, but a would be speculator who is now underwater, we understand that somewhere along the line someone is going to pay for this bubble. The question really is where in the world does the inflated housing buck stop? Report after report from credible sources (unlike some lowly blogger) are now openly discussing nationwide price drops of 25 to 30 percent. The mainstream media is now running with this housing crash phenomenon but why are they still painting with the sub-prime brush? This is much larger than sub-prime and until we start hearing, “every home in virtually every area needs to be prepared for depreciation” we know that we still have a long way to go down.

Yet there is a silver lining. Many people are now finding “bargains” even here in Southern California, the birth place of Real Homes of Genius and stuntman mortgages.I’ve gotten request by readers to go back into the time machine and find out what happened to homes we have featured. The reason I have refrained from doing this is for the simple fact that the majority of these homes simply did not sell. They were pulled off the market or are now back as an REO to the lender. Now out of the 58+ homes we have featured only a handful have sold. Let us now go back to a time when the credit crunch was only a figment of our imagination. A time when sub-prime loans grazed and a period in our bubble history where credit flowed like the rivers of Brazil. We will now go back to July of 2007. Today we salute you Lakewood with our Real Homes of Genius Award.

Real Homes of Genius - The Circle of Life.

You may recall this home in Lakewood California. In fact, this was one of the first few homes that we saw losing $100,000 in a matter of one year. This is a large amount given the actual sales price of the home:

Previous Sales History:

08/31/2006: $500,000

03/17/2006: $489,000

This enormous 816 square foot 2 bedroom 1 bath home sold at one point for half a million in an area that is middle class. If you want to see what will happen to thousands of homes in many of the 88 cities of Los Angeles, this is a preview. The fact that this home sold at $500,000 is simply an astonishing piece of information. The next fascinating thought that runs across your mind is who in their right mind would lend that much money on a home that is 816 square feet!? If you want to see how the credit crunch impacted prices let us take a look at what happened in 2007 when they were trying to sell the home:

Price Reduced: 04/24/07 — $499,900 to $485,000
Price Reduced: 05/27/07 — $485,000 to $470,000
Price Reduced: 07/11/07 — $470,000 to $450,000
Price Reduced: 07/18/07 — $450,000 to $400,000
Price Increased: 08/09/07 — $400,000 to $430,000

Many of you are now wondering, why would some increase the price by $30,000 right when the credit crunch was hitting? Frankly I do not know but the home did sell and not at that housing MLS gymnastic move. Let us look at the final price:

Sale History

01/18/2008: $395,000

So there you have it, a place that sold for $500,000 only 1 year and 4 months ago just sold for $395,000. A 21 percent drop in an amazingly short time. What you will see is many people are unwilling to struggle with a back breaking mortgage for a home that they can rent for $1,700 to $1,900. We can safely assume that this home was a foreclosure given the timeframe of how things transpired. The foreclosure process will take anywhere from 4 to 6 months here in California and that coincides with the late August purchase in 2006 to the short sale in April of 2007. In fact, I have been hearing stories were lenders simply are not paying attention and owners are staying longer in their homes payment free! It ended up taking 9 months on the market with a reduction of $105,000 to get this thing sold. You also need to factor in the sales commission, holding cost for the lender, and administrative cost. This is what is happening to countless Real Homes of Genius and other homes throughout Southern California.

With the post in July of last year, we had a comment posted by someone that highlights the general hesitation of those sitting on the fence:

“This is not a criticism, but aren’t we supposed to take into account “appreciation” and tax advantages of ownership in the rent v. buy calculation. Given a holding period of 5 years, I don’t know what the appreciation would be for the house or the rents, but it would make sense to take estimates into account.

Of course the central point is the same. California is crazy and has been so for some time.”

Now we know that buying a home in the current market is actually a risk in itself. Just like those buying in the previous years were speculating on price pops, now folks have to determine the break point of how much a home will depreciate. This is a major caveat on the current market fluctuation. Remember that historically housing tracks inflation. As hard as this may be for some people to realize or swallow especially here in California, this time is not any different. Things will revert and areas with higher bubble appreciation will fall harder. This is only one example of many. And we are in a modern era where we are daily hearing about intentional foreclosure where the psychology of current owners is very different. Simply put, some people are screwing lenders back with no hesitation.

As you receive your stimulus check in the mail in the upcoming months, think about where exactly the money is coming from. We are now entering a Real Government of Genius.

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