Category Archives: Analysis

Arcadia Housing Trends – 1st half of 2008

Redfin has an excellent feature called “Inventory and Housing Trends.” The data is city-specific and gives us a good idea of where home prices are heading. The data below is specifically for Arcadia, California and basically supports what we’ve been stating all along. Arcadia home prices are under heavy pressure from increasing inventory, rising foreclosures and low-affordability.

Inventory has essentially more than doubled since April of 2007. This is what happens when people are forced to sell their homes due to exploding ARMs, weak job market and just simply being underwater on their mortgage.

I suspect that we will break through the $350/sf mark for single family homes by the end of 2008.

All those PUDs, condos and condo conversions will be hurting next year once the median is comfortably below $300/sf.

If these charts weren’t dismal enough, here’s my chart tracking the increasing number of Arcadia foreclosures over the last 6 months.

These are basically the first Arcadia-specific charts I’ve posted since was launched. We have dozens of charts and graphs for Los Angeles county but historical city-specific data is always difficult to come by. Now that we have them, I hope all you readers will find the information useful!

Back to the Fundementals

The housing crisis we are facing today is without precedent. Although there have been many housing bubbles in the past, the mess we got ourselves into this time will go into the history books as giant Wall Street financial institutions go from billion-dollar companies to being worth… nothing.

I have said several times that as potential home buyers today, now, is the time to save your cash. Sure, if you’re looking into the Inland Empire or Antelope Valley, there are plenty of unbelievable deals out there. But here, the San Gabriel Valley, has some time to go before prices correct themselves.

Now that the hype is over, people are starting to realize that million dollar plus McMansions are expensive to maintain and $700,000 for a fixer-upper is a horrible deal. People are also starting to realize that Arcadia is no San Marino and actually more comparable to Temple City (not saying that TC is bad).

No matter where you look, everything points to more declines in home prices. Here are figures from 3 major trackersL

Not surprisingly, home prices had skyrocketed beyond relative income levels:

In a normal market, people buy houses because it is better than paying rent. During a bubble, it is much cheaper to rent than to own. It is no different in Arcadia, Temple City, Monrovia and Pasadena. Today, it is a lot cheaper to rent in these cities because home prices are out of line with fundementals. There was a reason that $700k PUDs in Arcadia were selling for only $400k just 5-6 years ago.

I know too many people in the Rowland Heights, Diamond Bar, Yorba Linda and even Irvine regions that argued prices in their area wouldn’t drop much due to ‘stellar’ schools, excellent location and a central hub for Asian immigrants.

Two years later those same people are split into 2 groups:

Group 1: They didn’t buy but claim that NOW is the best time to purchase before prices skyrocket again. (?!?)

Group 2: This group bought and feel that it’s necessary to justify their purchase because it was “the home” and they got a great deal on it (despite being underwater on their loan).

Both groups now say that it is ok to buy if youplan to hold on for 5 years

Does this sound like denial to you? Although I know that everyone is on the lookout for their dream property, buying a home is one of the biggest financial decisions someone will make in their lifetime. There is very little room for choices based on emotional attachment or denial of fact. I believe that everyone should work hard to buy a home one day.

Unfortunately, as an Arcadian renter, today is not it.


Calling the “bottom” isn’t that important to me because when the time to buy is here, there’s no way you can miss it. Just compare the price relative to your household income and figure out the difference between the cost to rent versus owning. Trust me, if you sit down and run the numbers, the decision will be easy. But if you insist, here is my call:

November 2010

Sure, 2009 will be a dismal year with plenty of false hope. Wait until after the Summer of 2010 because that’s when the reality of real estate will sink in: homes, unlike stocks, are illiquid assets and make horrible investments. But they are great for growing families and individuals wanting to settle into one location.

Bi-Annual Sales Report

The June 2008 housing numbers are in so I’ll leave these up over the weekend. We’ve gone ahead and compiled the figures for the entire first half of 2008. I would love to here your thoughts!

Arcadia Homes Sales Data

Something tells me that this trend will continue for the rest of the year. This data shows that the “high-end” homes aren’t selling like they did during the peak of the bubble. And you know why? It’s because anybody who could afford the 20-30% downpayment on a million-dollar plus property is probably smart enough to know that real estate appreciation is dead for the next several years and they are better off investing that cash.

Have you heard about Wachovia and their whopping $8.8 billion loss due to the housing and credit crisis? That is no small change folks. Our friends on Wall Street are currently trading assets at pennies to the dollar because what used to be a hot item (i.e. real estate) is now considered the worst investment anybody could hold.

Of course, you already know this. Housing was never meant to be commonly traded as a liquid asset and it never will (except during a bubble!). But tell that to the 200+ sellers currently on the market and you’ll sure to be stoned.

4 Reasons Why You Should Rent

When I was younger (and dumber) I used to think that renting was for poorer folks. My parents hammered into me the belief that renting was equivalent to throwing money away every month. Fortunately, college taught me that it was necessary to challenge everything I’ve learned as a child and realize that many things in life aren’t black and white. Can renting be a waste of money? Yes, but it doesn’t mean that’s always the case.

Putting the current inflated prices aside for a moment, let’s take a look at 4 reasons why MSN Real Estate says you should consider renting:

1. Renting can save money

At the very minimum you’ll be shelling out PITI for your home. That is:

  1. Principal
  2. Interest
  3. Tax
  4. Insurance

That doesn’t include property maintenance like upkeeping the yard, paint, plumbing, ect… When you rent, most people just make one monthly payment and that’s it.

2. Homeowners’ tax deductions are overstated

According to research quoted by MSN, “… half of homeowners don’t get a break, because even with mortgage interest and property taxes, their total deductions do not exceed the standard federal tax deduction ($10,900 for couples and $5,450 for singles)”.

For these folks, it’s like spending $100 to save $20. They’re better off saving the difference and investing it.

3. More options are available to renters

This is a no-brainer. Renters have a limitless supply of apartments, condos and empty homes to choose from. Even for a larger family it is possible to rent cheaper than it is to own.

4. Renting gives you flexibility

This point is dependent on your current situation. For the up and coming young professional, you’re better off renting and saving for a few years than to buy a small condo. Who knows how fast you will outgrow it?

Depending on how much you can save, families with children may be better off settling now since moving is a hassle.

My #5 reason why you should rent right now?

Property prices are declining, foreclosures are picking up and even with a sizable down payment, renting is still cheaper that owning. Don’t worry, you’re not going to miss the bottom because unlike stocks, real estate takes years to go anywhere. The bottom will be 2-3 years of flat prices and even investors will be crying doom and gloom.

That is when you know it’s time to buy.

A Peak and 2 Bottoms

Most people give me a crazed look when I tell them home prices in Arcadia will drop another 25-30% over the next 3 years. Why is that so hard to believe when values doubled and nearly tripled over the course of 4 years? A housing bubble consists of 3 points: a peak and two bottoms.

Have we hit the second bottom yet?

Over the course of this housing downturn, I’ve personally met friends and associates who are all at different stages of the home buying process:

1) Renter Savers
These people may or may not have money for a downpayment. They understand how bad the market is and rent because it’s cheaper. This group of renters are living below their means and save a good portion of their monthly income.

2) The Clueless
These guys have very little money and absolutely clueless regarding what it takes to buy a home. Therefore, they rent and have no idea as to how bad this housing crisis is because it seemingly doesn’t affect them.

3) Would-be Knife Catchers
I am most worried about this group of friends. They are just starting to realize how much money homeowners made off real estate over the last 5 years and are eager to jump into the market. They view real estate as a great investment and renting as a “waste of money”. Many of them are excited over all the REO auctions popping up throughout Southern California and are eager to land a smashing deal.

In addition, these individuals all seem to know a Realtor or prominent financial guru who encourages them to buy now because we’ve hit bottom. I tell them we have a few more years of double digit price reductions to go and they shrug me off.


For those in Group 1, they’re in a good position. After this whole crisis blows over, those with cash-on-hand will have no shortage of affordable homes to choose from. Even if interest rates skyrocket, home prices will fall even further and a sizable downpayment increases your buying power.

For Group 2 folks, I’ll sum up the housing bubble in 7 points:

Late 1990’s – The tech boom crashes and everyone wants a safe investment: Real estate!

2000 thru 2003 – Fed lowers interest rates and increases home buying.

2003 – Sales weaken so lenders push for more interest-only (IO) and adjustable rate mortgages (ARMs).

2003 thru 2005 – Housing prices double and nearly triple throughout the country. East and West coasts become investment flipping hot spots and we get:

  • Media hype
  • A buying frenzy
  • Investors flood the market
  • Developers overbuild
  • …and 1 out of ever 4 adults becomes a real estate agent. [sarcasm]

2005 thru 2006 – Mainstream media acknowledges that we’re in a “bubble” but the Feds, Wall Street and National Association of Realtors is resistant to the news.

2007 – Show’s over as the secondary lending market collapses overnight and eventually giants like Countrywide, Washington Mutual and Citibank get hammered. Sales volume and prices begin dropping at record levels.

2008 – We see no stabilization in prices and definitely no bottom in site. The crisis makes it way into Los Angeles and all but a handful of cities show resistance to the trend. Sorry, Arcadia isn’t one of them.

Tips for a buyer’s market. Part 1

We are entering a housing market that will be very different compared to the last 5 years. During the run-up of prices leading to our housing bubble, sellers had the luxury of rejecting offers because there were a dozen more offers on the table. As a buyer, you were expected to be ready and increase your offer if a higher bid came in.

Not surprisingly, this led to a buying frenzy as buyers feared that they would be priced out of the market. People didn’t think twice about overpaying for a home because agents and lenders fed them the false hope of annual double digit appreciation. Zero-down, zero doc, 105% financing and interest-only payments made buying quick and effortless. Sellers were able to milk every penny of “equity” from their homes.

Times sure have changed.

As a buyer, the rules are now changing in your favor as properties sit on the market for 300 to 400+ days and multiple prices reductions become the norm. See the following condo conversion:Price reductions for 535 W DUARTE Rd #11:

Date Price May 03, 2007 $485,000 Aug 09, 2007 $479,000 Sep 12, 2007 $469,000 Oct 26, 2007 $459,000
Feb 06, 2008 $448,000
May 09, 2008 $438,000

So what can you do take advantage of this turning market?

1) Do your research first

Sites like, and provide a near-comprehensive list of homes currently for sale. Many sites can refer you to an agent or broker who will provide their services after you’ve drawn up a short-list of potential homes.Through these brokers, you have room to negotiate their fees by getting up to 2/3 of their usual 3% commission back. If you don’t want the cash, then have the broker agree to a lower commission rate and take the difference back in a lower purchase price. The choice is yours

2) Make your first offer and go down from there

Let’s face it, we are facing a record-high inventory of unsold homes and the urgency to secure a home with a higher offer is a thing of the past. When the seller tells you they have more interested buyers waiting in line, I suggest you wait a few days before calling back with a lower offer. Chances are, they will panic and come down on the price. Trust me, if there was another “better” offer on the table, the home would’ve already been sold. This is not a housing market where sellers can afford to be picky.

Whether you go with the fundamentals of affordability, GRM or comparable sales, decide on what you will pay for a specific home and start from there. It can be 10, 15 or even 20% off the asking price. It doesn’t matter if the seller is facing financial distress, underwater on their loan or even on the brink of foreclosure. Remember, always counter with a lower offer in increments of your choice (e.g. $2,000, $5,000 or, heck, $10,000).

Your thoughts?
These are just 2 of a dozen tips I have out together. Although we are far from reaching the bottom of the market, it doesn’t hurt to prepare yourself for the right buying opportunity.

Foreclosures leading the way

Yesterday, we wrote about how foreclosures will lead this housing correction and the reported numbers are breaking all sorts of records:

California – 1st quarter 2008

  • 113,676 Notice of Defaults issued – Up 39.4% from the previous quarter.
  • Notice of Defaults are up 143.1% from first quarter 2007.
  • Actual foreclosures totaled 47,171 – Highest since DataQuick started tracking in 1988 (20 years ago).

According to DataQuick, the increase in foreclosures can be contributed to a significant drop in property values and the wave of exotic mortgage made in 2005-2006. Remember the Map of Misery? It gives you an idea of where the largest numbers of exotic mortgages are concentrated in.


These red states experienced incredible price appreciation leading up to the peak of the housing bubble. As reflected on the map below, they are now experiencing the brunt of decline.


Although we sounded crazy predicting a long and hard housing crisis, it looks like Wall Street is starting to reach the same conclusion that many housing blogs came to last year. According to a Goldman Sachs analyst, “the correction in national house prices is only halfway through” and,

Arizona, Florida, Virginia, Maryland, California and New Jersey, could see further price declines of 25% or more.