8 out of 10 Worst RE Markets for 2009 in California

According to CNN,

“The housing market hasn’t bottomed out yet. For the third quarter, the closely-watched S&P Case-Shiller national home-price index fell 16.6%, and experts are predicting further declines. Of the top 100 markets, here are 10 with the worst forecasts.”

And out of those 10, 8 of them are in California. This isn’t news to the California housing bloggers, but it may be shocking news to most California homeowner/debtors. The numbers are staggering and things don’t look too good for the next few years. Here’s the data for these 10 areas that includes this year’s median price and the projected change change up to 2010.

1) Los Angeles, CA (LA/LongBeach/Glendale)
2008 median house price $375,340
2009 projected change -24.9%
2010 projected change -5.1%

2) Stockton, CA
2008 median house price $248,050
2009 projected change -24.7%
2010 projected change -4.0%

3) Riverside, CA
2008 median house price $256,540
2009 projected change -23.3%
2010 projected change -4.8%

4) Miami, Miami Beach
2008 median house price $293,590
2009 projected change -22.8%
2010 projected change -6.4%

5) Sacramento, CA
2008 median house price $225,140
2009 projected change -22.2%
2010 projected change -2.3%

6) Santa Ana/Anaheim, CA
2008 median house price $532,810
2009 projected change -22.0%
2010 projected change -3.5%

7) Fresno, CA
2008 median house price $257,170
2009 projected change -21.6%
2010 projected change -3.3%

8. San Diego, CA
2008 median house price $412,490
2009 projected change -21.1%
2010 projected change -2.9%

9) Bakersfield, CA
2008 median house price $227,270
2009 projected change -20.9%
2010 projected change -2.5%

10) Washington, D.C.
2008 median house price $343,160
2009 projected change -19.9%
2010 projected change -5.7%

Sources: National Association of Realtors; Moody’s Economy.com

I wonder how the realtors are going to spin this one given that the NAR is one of the sources. There will undoubtedly be some seemingly great deals out there in the next couple years, but I can’t really imagine anyone taking the “It’s a great time to buy” reason anymore. Sure prices have come down a lot since a couple years ago, but just because people are hoping the decline will stop doesn’t mean it will. With the dwindling economy, the chances of a quick recovery are slimmer than ever.

Don’t forget, we’re only about halfway through the exploding ARMs that were taken during the bubble. We’re only at #24 on the x-axis on the infamous Credit Suisse chart.

This is going to be a long and painful RE recovery for all of us. I wish I had something more uplifting to share, but this was the headline that I woke up to this morning. It’s not a pretty sight out there and the storm is going to get worse before it gets better, but I hope people have learned their lesson. In this season of love and joy, take time out to be thankful what you do have in your life. When times are tough it seems like everything sucks, but we are still far better off than many people in other parts of the world. May you and your family have a safe and happy holiday season!

The Great Housing Bubble

When IrvineRenter approached us to write a review about his book I almost said no. Although I still follow the local housing market closely I really didn’t have the time nor energy to keep up with all the housing blogs. A week or so passed and the book came in the mail and just sat on my desk. And on my desk it sat for some time until I finally picked it up last weekend. I haven’t picked it up since because I finished the whole thing in one sitting.

In this time of economic hardship every financial decision becomes critical in one way or another. Sure oil is no longer $5/gallon, but many folks don’t have jobs to drive to either. I can’t seem to go through a day without hearing of this bailout or that rescue on the news. Because no one really knows when the economy will pick up again, I find it more important than ever to understand the real estate market and not make any bad moves that can put you and your family’s way of life in jeopardy.

The Greay Housing Bubble

Enter IR’s book – The Great Housing Bubble. You can buy it here, here or here. Lawrence Roberts is best known for his posts documenting the real estate crash on the IrvineHousingBlog as IrvineRenter. I have been an IHB reader since late 2006 and I encourage you to visit it if you don’t already. The author does a great job of presenting multiple aspects of the real estate market by taking the reader through the fundamentals and broad concepts of real estate economics, the structural and psychological factors of the bubble and finally how to deal with and prevent another one from forming.

As I read the book I found myself both amused and amazed at the clarity it brings to the current RE situation. Amused because I have yet to empty my personal reservoir of schadenfreude and amazed at how clearly the components of the bubble equation were spelled out. What factors contributed to the bubble and how did they affect the market? How can you protect yourself from making a bad financial decision in the next bubble? The analysis are well thought out and clearly communicated to the reader. I recommend this book whether you are a renter waiting on the sidelines with cash, a home debtor stuck underwater or even a hopeful real estate agent looking for business.

I should have prefaced this earlier in the post, but I do not have any incentive, financial nor personal, to promote this book. What we bubble blog authors write will not change the course of events that have and will unfold in the coming years. My goal is to get the word out to help people understand the real estate market so history does not repeat itself over and over again.

Quick Update- August 2008

Things have not improved. Our buddies are Meryll, once snotty and too important to hang out with us, are now asking for employment applications. That is on top of the phone calls we keep getting from ex-Lehman guys. 

Anyways, this is a great summary of the current housing situation. Enjoy!

Home values plunge in Southern California
Median home price fell 34% in August from last year, sales up 10% during period but many driven by foreclosures.

“Foreclosure activity remains high, credit is still tight, affordability remains strained on the coast and the job market is soft,” Walsh said. “Some expect prices to bottom out soon … That may happen, but history suggests that few of us will time the bottom precisely.”

Foreclosures accounted for almost 46% of all resold properties last month, up from 10% in August 2007 and almost 44% in July. To top of page

Holy cow. Take out the REO sales and normal transactions are at record lows.

Crisis on the Homefront

First of all, I want to apologize to everyone for not blogging the last couple of days. A crisis had erupted at work and we’re all scrambling to keep the company from collapsing.

Some of you know that I work for a real estate development firm. Unlike public giants such as KB Homes or Lennar, my company does not have the ability to bleed money for several months in a row. We own hundreds of acres of land throughout California that are basically worth nothing now. Zero. Zilch. Nada.

I have long predicted that many local developers will be forced to close shop due to this housing crisis and, hey, it looks like I got that forecast right (at least for my company).

Anyways, until things settle down here, I will not have the time to blog on a daily basis. 


**Update** Empty McMansion #2 – SOLD!

Back in February we profiled a series of empty McMansions in Arcadia. Most of them were brand new, big and overpriced. After a total of 217 days on the market, the following McMansion on 8th Street finally sold.

Original listing price: $2,980,000 ($398/sf)

Final sales price on 6/12/08: $2,600,000 ($347/sf)

The 13% price reduction might not seem significant but the new owner saved himself $400,000 by buying in June versus 7 months earlier.

As for the seller, I wonder whether they made any money off this property:

Purchase Price in 2004: $750,000
Construction Cost: $1,500,000 ($200/sf)
6% Agent Commissions: $156,000
Carrying Cost: $186,200 ($3,800/mo x 49 months of ownership)

Total cost to seller: $2,592,200

Total profit to seller: $7,800

I have a feeling that $2.6MM was the break even point for this seller. What are your thoughts?

**Originally profiled on February 28, 2008.

1103 S. 8th Ave.
Arcadia, CA 91006


Asking Price $2,880,000 ::: Sq-ft 7478
Purchased Price $750,000 ::: Lot Size 27,063
Purchased Date 04/19/2004 ::: Beds 7
Days on Redfin 113 ::: Baths 7.5
$/Sq-ft $385 ::: Year Built 2007
20% Downpayment $576,000 ::: Area Near Monrovia
Income Required $720,000/yr ::: Type SFR
Est. Payment* $14,561/month ::: MLS# A07162003

*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%

Brand New Luxurious Estate at Prestigious location in Tree Street.

Riiight. Since when did 8th Street become a prestigious location? The seller would certainly want potential buyers to think that it’s prestigious when in fact it’s just a 6 blocks away from the Monrovia shooting last month. Let’s see, another house requiring half a million dollars downpayment and still over $14,000/month in mortgage payments for basically an overbuilt McMansion doesn’t sound appealing to me.

Assuming the same $225/sqft in construction costs as we did in yesterday’s profile, this house would have cost our specuvestors $225/sqft x 7478 = approx $1.683MM to build.

$2.88MM (asking price) – 6% commission – $750,000 (purchase price) – $1.683MM (construction costs) – $174,800 (carrying cost at $3800/month x 46 months) = just under $100k profit

Purchase Price $750,000
Purchase Date 04/19/2004
1st Loan $616,000
2nd Loan $77,000
Downpayment $57,000

Listing History
11/7/2007 $2,980,000
2/16/2008 $2,880,000

The mailing address for this property’s seller is on the same street as that from the property profiled yesterday. Do flippers congregate and live in clusters? Lately I’ve been seeing a lot of properties on the market where the seller’s mailing address is just a few blocks away right here in Arcadia. It makes me wonder if they decided to buy and flip property on a whim during a stroll in the neighborhood. The number of McMansions in certain parts of the city is overwhelming and with the reckless market psychology we’ve had in the past few years, it’s understandable how so many people got caught up in the storm.

The very act of flipping is going to cause some major problems because flipped properties sit empty. It generates no income yet have reoccurring monthly costs until the property is sold. Every month it sits on the market casts a larger financial anvil on the investors. This particular home has been on the market for almost 4 months with just one 3% price reduction.

If you made $720k/yr, is this a house you’d be willing to pay $14k/month to live in? In an area just a few blocks from recent gang-related shootings? I think not. With the higher interest rates and tighter lending standards, most people won’t qualify for a loan this size. The ones who do have documented income to qualify and enough cash for a $500k downpayment will probably not want to live here.

Things aren’t looking good for these sellers.

Tale of Two Properties

Today we have two properties that could not be more different. One is a 69 year old “sold as-is” home located in the Northern hills of Arcadia. It isn’t a flattering place but you supposedly get a “Great city light view”.

The second property is a typical 5,100sf McMansion located near Longden and Baldwin Ave. It boasts of granite counter tops, grand staircases and even a guest house.

They both share one thing: the sellers are stuck in 2006 pricing and hoping to make hundreds of thousands of dollars after a few years of ownership.

2215 Cielo
Arcadia, CA 91006

Price: $1,470,000 ($471/sf)

  • Beds: 4
  • Baths: 2.25
  • Sq. Ft.: 3,124
  • Lot Size: 0.28 Acres

Sales History
Dec 13, 1995 $430,000 ($137/sf)
Mar 13, 2003 $665,000 6.2%/yr ($212/sf)

After 5 years of ownership, the owner is currently listing the property for $805,000 more than what he/she paid for it. Did the “city view” get a lot better over the last couple of years?

732 W Lemon Ave.
Arcadia, CA 91007

Price: $1,988,888 ($390/sf)

  • Beds: 6
  • Baths: 5.5
  • Sq. Ft.: 5,100
  • Lot Size: 0.47 Acres

This seller bought the McMansion in 2005 for $1,690,000 and has relisted it for nearly $2,000,000. $2MM is easy to stomach when there’s no 20% down payment requirement and you’re on a interest-only mortgage plan. Now take away all that and your buyer pool is quite limited. If I had $400,000 for a down payment, I can think of several dozen homes I’d rather buy than to sink it into this monstrosity that doesn’t even offer proper landscaping:

Sales History
Oct 07, 1988 $154,000
Mar 27, 2002 $508,000
Sep 30, 2005 $1,690,000 ($331/sf)

Currently listing for $1,988,888 ($390/sf)

There is absolutely nothing wrong with trying to maximize your profits when selling a home. You would be crazy to argue otherwise. Unfortunately, what we see here are uninformed sellers stuck in yester-year’s pricing and the Realtor is going along with it. A quick look on Redfin will reveal grander McMansions being sold for under $1.8MM so $1.988 for the one above isn’t even within kife-catching territory.

Tracking the Arcadia and San Gabriel Valley Housing Market