Some have commented that much of what is being said on housing blogs is self indulgence and a form of righteousness. I can’t speak for other blogs but I care to disagree. Most of these comments have an underpinning that bloggers need to come to the table with a solution to a decade long bubble as if the housing bubble was a historical fact, something that has already occurred. I hate to tell many of you but there are still people jumping into the housing market TODAY. This isn’t some case study from the 1800s but a real-time event. The media has been pumping the housing market up and even as it is correcting, they are trying to season the market with the sentiment that we are quickly approaching bottom. Those in the perma-bull camp are still reluctant to come to the table and openly admit that we are indeed in a recession. That is hard enough for them to say. Forget about them admitting that this recession is the product of years of reckless spending and massive consumer speculation tied to the housing market. You want a solution? You want a debate? Let the market correct. The market was fueled by easy credit and lack of oversight and now it is being propped up by proposed bailouts and every other imaginable piece of absurd legislation. Take a look at the below chart showing job growth:

*Source: BLS

Take a look at the chart very carefully. Considering that the recession of 2001 was considered to be a mild one, we had 12 straight months of solid job losses. Given that we have seen only 2 months of job declines and the consensus is the market is much worse than in the earlier part of decade, how can anyone start mentioning a bottom? That is why it is crucially important to remind people, many who are new to the “debate” (although I’m not sure there is any debate about there being a housing bubble) that housing in many large metro areas is still massively overpriced. The most important thing is to protect current prospective buyers from making the same mistake. It is also vital to put the entire housing market in context to the current jawboning of many pundits. Take a look at the following chart showing median income vs median home prices from 1992 to 2005:

What you’ll notice nationwide is that the median home price went up 100+ percent while median income went up 47 percent. If there is a bubble nationwide you can only imagine how disconnected prices got here in California where the median prices reached $551,000 in January of 2007. The price has now adjusted swiftly to $430,000 but how much further do we have to go before we really reach a bottom? The new item now being thrown into the debate is the actual employment health of the economy. So much of California’s economy was built around real estate; agents, brokers, construction, banks, and others that were extremely high paying jobs. What industry is going to absorb these displaced workers? Take a look at this chart from the Lanser on Real Estate Blog:

*Source: Lanser on Real Estate

This chart is for February of 2008 and I’m not sure we can paint a clearer picture of what is occurring. Now another factor that we have to contend with in regards to housing prices correcting is a looming recession. How long will it go? At the very least if we use the mild recession of 2001 as an example we can expect to see 12 months of negative payroll growth and at times, steep declines in employment. States such as California with such a high emphasis on housing will pay a much steeper price.

Real Homes of Genius - Third Times a Charm

Today’s home takes us to Huntington Park. This 732 square foot home with 2 bedrooms and 1 bath sold at the peak of the bubble for $311,000 in 2005. It then sold in February of 2007 for $308,305. Take a look at the sales history:

Sale History

02/21/2007: $308,305

07/06/2005: $311,000

10/07/2003: $160,000

Why is this important? Each time a sale is recorded, an agent gets a cut, a title company gets fees, an appraiser gets paid, a broker/lender gets a cut, and the seller gets a check out of escrow. As you can see, each transaction pays many people. So a home that sold 3 times in 4 years is paying a lot of people. What happens now that sales are dwindling? A market flooded with homes and many not being paid. Take a look at these important statistics:

Statewide

Existing Home Sales January 2007: 446,820

Existing Homes Sales January 2008: 313,580

A -29.8% decline.

Median Time on Market Jan. 2007: 68.7

Median Time on Market Jan 2008: 71.6

*In days.

Unsold Inventory Index (months) Jan 2007: 7.6

Unsold Inventory Index (months) Jan 2008: 16.8

A 121.1% increase.

What this tells us is that housing is in no shape or form bottoming out here in California. As a rule of thumb, having about 6 months on the unsold inventory index is pretty normal. 16.8 months of inventory is not a good sign and also seeing the median price drop by $120,000+ in one-year isn’t exactly good either.

This current home is now being sold for $261,900 and was built in 1924. Given that it is relatively new on the market, we can expect it to sit for at least a few more months. It is bank owned and many are now chopping and dropping prices rather quickly trying to move inventory off their books. The housing market has crashed here in California but how low will it really go? Until we see how our employment sector holds up, it is really difficult to predict.

Today we Salute you Huntington Park with our Real Home of Genius Award.

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Related Posts:
■Real Homes of Genius: Today We Salute you Huntington Park. Tweedledum and Tweedledee of housing. $500,000 Homes in Wonderland.
■Real Homes of Genius: Today we Salute you Baldwin Park. When you Only Need to Show Concrete to Sell at $400,000+.
■Real Homes of Genius: Today we Salute you Buena Park. $511,000 for 864 Square Feet. Even Knott’s Berry Farm is Cheaper!
■Real Homes of Genius: Today we Salute you Pacoima. Zillow says $457,000 but Listed at $225,000?
■Real Homes of Genius: Today we Salute you Monterey Park. 800 Square Feet for $479,000.

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What took so long?

The investigation centers around the representations that Countrywide made as part of their quarterly and annual securities filings about the stability of the company and the soundness of the mortgage loans originated, sold and held by the mortgage giant.  The FBI and the SEC are currently investigating 14 lenders for misrepresentation in areas such as accounting, loan securitizations, mortgage underwriting and subprime lending practices.

Countrywide was apparently unaware of the investigation.

From the New York Times on the FBI investigation of Countrywide:

The Justice Department and the Federal Bureau of Investigation are looking at whether officials at Countrywide, the nation’s largest mortgage lender, misrepresented its financial condition and the soundness of its loans in security filings, the officials said.

For years, the F.B.I. has been warning that mortgage fraud is a significant and growing problem. In the 2006 fiscal year, it documented 35,600 reports of suspected mortgage fraud, up from 22,000 the year before and 7,000 in 2003.

For the most part, the cases the F.B.I. has brought so far have focused on local or regional mortgage fraud rings that involve speculators, loan officers, brokers and other housing professionals.

The news couldn’t have come at a worse time for the mortgage giant as it tries to complete the Bank of America takeover.  We’ve heard reports of FBI raids on regional offices for months without any confirmation.  Now that the WSJ and NYT are running the story it seems likely that we’ll be hearing a lot more about the inner-workings of one of the most reviled companies in the country.

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