Before you ring the bell and signal the end of the California housing bubble, there are cities and properties that still defy the laws of economics.  California has corrected hard.  The velocity of the one year correction is unlike anything we have ever seen in the history of our housing market.  Seeing prices drop by […]
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■Real Homes of Genius: Today We Salute you Huntington Park. Tweedledum and Tweedledee of housing. $500,000 Homes in Wonderland.
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Before you ring the bell and signal the end of the California housing bubble, there are cities and properties that still defy the laws of economics.  California has corrected hard.  The velocity of the one year correction is unlike anything we have ever seen in the history of our housing market.  Seeing prices drop by 38.3% in one year has literally pulled the rug out of thousands of would be sellers.  The California housing market is in the eye of the hurricane and many are shell shocked not knowing what their next move will be.

Part of the unintended consequences of foreclosure is many people are leaving pets behind.  For a variety of reasons, many simply decide to pick up and go and let the pets fend on their own.  The national media has been covering the story of Powder the 44-pound cat who is a victim of the foreclosure crisis:

Powder, initially named “Princes Chunk” was found wandering the streets in New Jersey after her owner gave the cat to a friend who was supposedly going to take the cat to a local shelter.  As it turns out, Powder was left on her own roaming the streets (as much as she could move around).  Of course with all the media coverage the cat will find a home.

In California another problem has been with foreclosed homes with pools that suddenly becoming breeding grounds for mosquitoes.  In fact, local experts have recently attributed larger mosquito populations that correlate to the rise in foreclosures.  One recent estimate puts 4,000 Los Angeles foreclosed homes with having a pool.  Since the notice of default count is rising and many of these are simply foreclosures waiting to happen, we can expect many of these problems to occur in the future.

The notice of defaults usually meant a warning to sell the home.  That normally was the case for years as the California housing market kept rising and rising and homeowners who bit off more than they could chew would simply offload the home into the market normally at a profit.  With massive declining prices and many buyers going in with zero to very little down, any cushion of selling is completely gone.  They are underwater on the mortgage usually by tens if not hundreds of thousands of dollars.  Take a look at the notice of default chart:

The more disturbing trend is many of the NODs are now turning into foreclosures.  Without a jump in home prices, we are virtually guaranteed another year of massively high foreclosures.

I did a recent report analyzing the 270 zip codes in Los Angeles County’s 88 cities and found that only 28 of those zip codes had a positive year over year increase in home prices.  What we can see from the progression of price declines is that the last hold outs in prime areas are still holding hope that there status symbol will keep them above the rest.  Today we are going to look at one of those zip codes in Santa Monica that is still up 28.9% on a year over year basis.  That is correct, as the entire county of Los Angeles is down nearly 40% on a year over year basis, this hold out is still up 28.9%.  Today we salute you Santa Monica with our Real Homes of Genius Award.

The Name Can Only Carry you so Far

Today’s home takes us to the wonderful city of Santa Monica.  Many people out of the state have a hard time understanding why Santa Monica carries such a heavy premium.  First, it is an excellent location.  Near the beach and centrally located to the entertainment zones in Los Angeles.  It also carries the prestige of the 310 area code.  This area code is desired because it carries the affluence of the West Side of Los Angeles that includes Beverly Hills and Malibu as well.

Yet more and more, simply having a home in said area code isn’t enough to command eye-popping prices.  The above home is a perfect example.  It is located in the 90405 zip code in Santa Monica that carries a median price of $1,625,000, an increase of 28.9% over the past year even given the current housing turmoil.  Yet this house isn’t seeing much of that big gain.  This 929 square foot home with 2 bedrooms and 1 bath was initially put on the market for $1,099,000 in May.  Seems like a steep price tag for a place built in 1937 but apparently that doesn’t seem to matter.

After being on the market for over 2 months, they decided to lower the price by $130,000 in June.  In 2 months did the price really drop $130,000 or is this just another example of the pie in sky anyone will pay whatever price because of the 310 area code mentality?  The current price is now at $969,000.  The ad seems to encourage the buyer to think about a “possible room for a pool” or about “double your living area” if you are not content with 929 square feet for nearly $1 million.

If we look at the sales history, someone is still poised to make a nice profit and that is something to be said given the current housing malaise:

Last sale and tax info

Sold 01/19/2007:         $835,000

So if the home were to sell at the current price, we get the following:

$969,000 - $835,000 = $134,000 in profit in one year and seven months.  That profit seems about as much as that $130,000 price reduction.  Even though prices have been jumping in this zip code, sales have been falling.  Another issue is many homes that recently sold in this area, even a few streets away have gone for $600 to $800 per square foot.  At 929 square feet, this puts our math at:

929 x $600 = $557,400

929 x $800 = $743,200

The current price tag puts a $1,043 premium on this place and the market isn’t responding.  We are left with a really stunning range of prices here and since sales are so few, only 3 in June of 2008 for this zip code, it is hard to say how things will play out on this home.  Incomes are high in this area with an adjusted gross income of nearly $100,000 per tax return filed:

*Source:  MelissaData

Given tax write-offs and other deductions, this income understates the actual true income of local households.  So let us assume a person making $150,000 a year wants to purchase this place with 10% down.  Let us run the numbers:

Purchase Price:            $969,000

Down payment:          $96,900

30 year fixed mortgage at 6.52% (PITI):        $6,532/per month

Gross Income:             $150,000 / per year

Net Income:                $7,634 / per month

So with that said, over 85% of this person’s net take home pay is going to pay for housing.  We are simply including the principal, interest, taxes, and insurance.  What if the person wants to add that pool?  What if they want to upgrade the kitchen?  Granite countertops anyone?  A remodel?  Anyone that owns real estate knows that the PITI is only the beginning in expenses.  As you can see even a person with a solid income would be shelling out too much for this home.  In fact, given the current FHA standards this person wouldn’t even qualify for a loan on this place!

Today we salute you Santa Monica with Real Homes of Genius Award.

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Real Homes of Genius: Today we Salute you Santa Monica. 929 Square Feet for $969,000. And You Thought the Bubble was Over.

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Related Posts:
■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 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: $80,000 off in San Fernando for 865 Square Feet of Joy!

Via [DrHousingBubble]

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Filed under: JPMorgan Chase (JPM), Goldman Sachs Group (GS), Personal finance, Politics

BusinessWeek reports that Wall Street has its eye on a new pot of cash — your pension. And it’s a mighty big pot — $2.3 trillion. But Wall Street is not looking at the entire pension industry, just a $500 billion portion known as “frozen plans” that are closed to new employees and whose benefits are capped. McKinsey forecasts that frozen plans will triple to a hefty $1.5 trillion by 2013.

As usual, Wall Street’s plan to buy these frozen pensions will line its own pockets and it will help companies as well. For example, if Wall Street charged a 2% management fee, that alone would generate $30 billion in revenues by 2013 if it bought all the frozen plans, but that fee income is probably the tip of the iceberg.

Companies are eager to dump their frozen pension plans. Why? These limping plans weigh down corporate balance sheet and new accounting rules will require companies to mark the value of their pension assets to market each quarter. In a down market, that could wipe out a company’s operating profits.

Continue reading Does John McCain want to help Wall Street wipe out your pension?

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Filed under: Good news, Consumer experience, Internet, Competitive strategy, Southwest Airlines (LUV), Contl Airlines’B’ (CAL), Delta Air Lines (DAL), Technology

These days in commercial aviation, airlines are finding ways to operate more efficiently amid the toughest sector conditions since the first oil shock in 1973-74.

And while there’s no love lost between passengers and the major carriers’ unconventional way of increasing total consumer flying costs by adding separate baggage fees, there’s one a-la-carte fee the public may be willing to pay for: a fee for internet access on airplanes.

Delta Air Lines (NYSE: DAL) announced it will start offering broadband internet service on domestic flights as early as October, The Washington Post reported Wednesday. Other airlines, including Continental (NYSE: CAL), Southwest (NYSE: LUV), and Virgin America are planning or testing internet services. (Delta will merge with Northwest Airlines (NYSE: NWA), pending U.S. Justice Department approval.)

Analysts generally credit JetBlue (NASDAQ: JBLU) with raising coach class amenity standards for flights in the United States when it introduced satellite TV and other services on its flights.

Delta’s service will cost a $9.95 flat fee for flights lasting three hours or less and $12.95 for flights longer than three hours.

Public seen receptive to Wi-Fi fee

Stock analyst and frequent flier C. Leonard Bauer says Internet fees would be “a lucrative revenue stream” for the airlines, and ironically one that will probably be popular with the public.

Continue reading A saving grace for airlines: Wi-Fi in the sky

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Filed under: Earnings reports, Google (GOOG), Apple Inc (AAPL)

Apple, Inc. (NASDAQ: AAPL) reported stellar, above-expectations quarterly results yesterday after market close. One would have thought that this company, in the midst of U.S. economic uncertainty, would have reported a mediocre quarter at best, but that wasn’t the case. Apple outpaced expectations by $0.11 per share, shipped more Mac computers than during any quarter in its history, and saw a 38% revenue jump from the year-ago quarter.

As a nice reward for such a stellar quarter, the market took Apple out behind the woodshed and gave it a sound whipping. The reason? Apple’s murky guidance for the fourth quarter. This from a company that almost always shoots low with guidance only to blow the numbers away. Add that to ongoing concern over the health of CEO Steve Jobs and you have a 10% drop in AAPL shares before the market opened this morning.

Is Apple the victim of outsized expectations? You bet. Just like Google, Inc. (NASDAQ: GOOG) the other day — which also reported a fantastic quarter but saw its shares pummeled right after results were announced — Apple may be losing the ability to impress. In reality, both companies are doing excellent business in the face of gas and energy price spikes in addition to a six-month string of job losses in the U.S. Yet, the market slapped huge losses on both stocks based on what could be considered shaky speculation for future growth prospects.

On the other hand, Citigroup, Inc. (NYSE: C) saw stock gains after reporting a better-than-expected $2.5 billion dollar quarterly loss last week. Talk about twisted.

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Thank goodness for that explicit guarantee!  Freddie Mac posted losses of $821 million and said that there is “no possible way” to predict the end of the housing bust.  The company also doubled it’s loan loss reserves to $2.8 billion - which sounds reassuring until you realize that $2.8 billion is only good for about 3 quarters of similar losses.  Freddie Mac is going to need lots of cash - my paycheck awaits!

From Bloomberg:

Freddie Mac, the U.S. mortgage-finance company hobbled by record foreclosures, slashed its dividend at least 80 percent after posting a quarterly loss that was three times wider than analysts’ estimates.

… Freddie doubled its reserves for future home-loan losses to $2.8 billion, signaling Chief Executive Officer Richard Syron sees no end in sight to the worst housing slump since the Great Depression.

Freddie has 22,000 properties in foreclosure, more than ever before, and it now anticipates losing 26 percent on each loan, up from 22 percent. McLean, Virginia-based Freddie has plunged 76 percent this year on concern the company may not have enough capital to overcome delinquencies on the $2.2 trillion of mortgages it owns and guarantees, prompting Treasury Secretary Henry Paulson to step in with a rescue plan.

“Neither we nor anyone else can predict when the housing market will recover and it will be folly for anyone” to try, Syron said on a conference call with analysts today. “There’s still a large amount of inventory to work through the system and record foreclosures.”

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Source [blownmortgage]

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Filed under: Earnings reports

By Ken Nagy, CFA, Zacks Investment Research.

June quarter revenue for Actel Corporation (NASDAQ: ACTL) fell short of consensus expectations, as the company was short of Flash product. However, the EPS was in-line. Although Flash product growth was lower than expected, the product line is expected to remain strong for the next few years. Actel continues to enjoy a high margin in select markets, although the quicker ramp of new products is likely to exert some negative pressure.

The exposure to the consumer market is also increasing, so working capital requirements are likely to increase. The stock looks attractive at these price levels, but we are reiterating our Hold rating in view of the broader market uncertainties.

Actel’s expertise, the limited competition, and its embedded customer base have enabled the firm to emerge as the leading supplier of HiRel FPGAs to the military, avionics and space industries. Actel’s Flash products are beginning to take off. The company has introduced seven product families to date, with varying success. Flash products generated 24% of revenue in Q2 of 2008. The management also expects significantly lower cost of production within the 1Q09-2Q09 timeframe, as the company proceeds on the learning curve and also ships higher volumes.

Continue reading Actel’s (ACTL) Flash looking to spark

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Filed under: Earnings reports

The shares of Orbitz Worldwide, Inc. (NYSE: OWW) are skidding all over the charts today following the company’s second-quarter earnings release. Orbitz confessed to a net loss of $5 million, or six cents per share, much improved from its year-ago loss of $32 million. Revenue for the recently concluded quarter inched 1% higher to $231 million.

While the results were better than the same quarter in 2007, analysts were looking for an even smaller loss of three cents per share on more robust revenue of $234 million.

Gross bookings increased 4% to $3 billion, thanks to a little help from overseas — international bookings rocketed 41% higher, compared to a 1% slump in domestic bookings. Orbitz’s international business now accounts for 23% of its revenue, up three percentage points from the year prior.

Despite the challenges facing Orbitz, president and CEO Steven Barnhart professed his enthusiasm about some new initiatives to drive growth. Specifically, the travel firm is launching a new “Price Assurance” functionality, and the company just entered a multi-year partnership with Microsoft (NASDAQ: MSFT) to serve as the online provider for MSN.com’s travel portals. Barnhart said these initiatives “will accelerate our domestic growth in the second half of the year and help offset any impact from current economic and travel industry uncertainty.”

Continue reading Orbitz Worldwide (OWW) plunges on second-quarter loss, domestic weakness

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Filed under: Deals, Rumors, Google (GOOG)

Yesterday on the tech news site TechCrunch, it was reported that Google, Inc. (NASDAQ: GOOG) may be buying social news website Digg.com for up to $200 million. Now, Digg.com has come under acquisition rumors so far, but this is the most serious one. Google stands to keep its iron fist over the controlled flow of information with the purchase if, in fact, it is officially announced.

Digg.com, which has propelled itself into the limelight by having its members and readers publish links to news stories from around the globe and vote on them to let its customers choose “headlines,” is no small potato.

Although Google was rumored to have been in the chase for the company back in March, it should go ahead and just make the announcement official. Integration of Digg.com into Google News (which is already an excellent product) would take Google’s news aggregation product to the next level and would assist it solidifying its daily news position against the likes of Microsoft Corp. (NASDAQ: MSFT) and Yahoo, Inc. (NASDAQ: YHOO).

Digg.com would not be a good fit for Microsoft, however. While Microsoft continues to roll out web-based properties and products, many of its actions seem to be compelled by a “me too” attitude more than a corporate strategy, regardless of what the company says. Google, right now, has the cachet and the product breadth to continue steamrolling much of the competition — and a Digg.com purchase would just make it stronger.

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