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 […]
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 Stanton.
■Real Homes of Genius: Today we Salute you Santa Ana. 498 Square Feet for $440,000, What a Deal!
■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 Buena Park. $511,000 for 864 Square Feet. Even Knott’s Berry Farm is Cheaper!
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.”
*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.”
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:
*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
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:
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.
Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information
.gif)
Post from: Dr. Housing Bubble Blog
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.
Share This
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 Stanton.
■Real Homes of Genius: Today we Salute you Santa Ana. 498 Square Feet for $440,000, What a Deal!
■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 Buena Park. $511,000 for 864 Square Feet. Even Knott’s Berry Farm is Cheaper!
Via [DrHousingBubble]
Share This
Until recently, I believed that shares of Comcast Corp. (NASDAQ: CMCSA) had been unfairly punished by investors who were too skeptical about the company’s prospects. Now, I am changing my tune because I have come to realize that the future of the company will be filled with endless pricing battles, which will force the Philadelphia-based cable giant to sacrifice the needs of shareholder to retain customers. 
Lately, there’s been lots of dire talk about the private equity world. Returns are likely to be much lower and perhaps there will be many firms that shut down.
Stock futures were higher this morning after Bank of America joined recent financials and topped Wall Street estimates. Also pushing futures higher is a deal in the pharma sector with Roche bidding nearly $44 billion for the rest of Genentech. However, both Merck and Schering-Plough said they’ll postpone reporting their financial results after the close; Apple will also be reporting results then. Finally, oil prices came off a six-week low and are trading back above $130 a barrel due to escalating Middle East tensions. Higher oil prices could dampen the mood on the Street.
The Oracle of Omaha is shining a light on the presidential campaign of Barack Obama.
