I've seen some weird shit in my day...

This is even more, um, entertaining.

How Much Is It Worth?

I've been scratching my head a lot lately wondering how to estimate a fair market price on properties for sale here in Huntington Beach.

Asking prices are out-of-touch with the market and seem to be driven delusional, denial-based wishes of homedebtors. Take as an example this listing from Redfin:


1,100 cramped square feet for $629,000 or $554/sqft where other properties in the area are selling for under $400/sqft. No wonder the house had been on the market for almost half a year.

Comprables properties are of some value, but are problematic because with property prices plummeting as they are, any property sold more than 30 to 60 days prior is no longer reflective of current values.

Then there are also comprables where the buyers, IMHO, paid much more than they needed to for properties thus biasing values upward. These buyers are like the idiot who split sixes at the blackjack table when the dealer has a ten showing: not only do they screw themselves but they also mess up the game for everyone else

So, if asking prices are meaningless and comprables are of rapidly diminishing value and subject to the influence of knife-catching, sixes-splitting idiots, how can one value a home? I'm not certain but I think I've found something that can help.

I was visiting one of my favorite blogs papermoney.com last night and found a remarkable home pricing tool.


It's a home price calculator that uses the past sales price of a house to estimate its current market value. The way it does this, is by comparing the Case Shiller Home Price Index at the time of last purchase and extrapolating the current price and future price of the home by the looking at the current trading price and futures price for the index, respectively. Being a quant and a big fan of Case Shiller, I think this tool is pretty damn cool.

It's really easy to use. Select the region your suspect home is in; in our case it is the CS Los Angeles market, type in the last sale date of the property you're interested in buying and the amount at which it sold--that's it. The tool will then calculate its past, current and future value (3 and 6 months out) for the home.

Let's do an example together. Here's a house I had a passing interest in over the last few weeks.


It's a nice house on a cul de sac, almost 2,400 sqft, very serviceable with a price reduced down to $625,000. Even for this market it almost seems like a good deal at $264 a sqft. But is it really?

By scrolling down to about halfway down the Redfin listing, we can find the sale history for the home:
So we type these values into the calculator and what do we find but that, at least according to this calculator, this price is still roughly $60,000 over market. I showed this to Mrs. HB Bear and we agreed that we'd pass on this fine little number on Autumn Circle.


So, fellow ursines, when you're considered making an offer at a home in the future, be sure to check out this fine little tool first. (I've added a link to the Cool Tools section of the blog for your convenience.) It may not be an exact estimate of the value of a home, but IMHO it is far more accurate than unrealistic asking prices and short expiry comps and just might prevent you from making a big, big mistake.

Viva los Osos!

Right Time to Buy: 2014

A great article came up in one of my news feeds today that I wanted to share with readers. This provocative Business Week article, says, among other things:

• Prices will only stabilize once foreclosures and sales volumes stabilize first.
• While some areas will stabilize as early as 2010, national prices won't stabilize until 2011.
• For the "bubbliest" of markets, including the author's home turf here in OC, prices may not stabilize until 2014.
• When prices do stabilize in OC in 2014, prices very well could be lower than in the early 90's.

His and my advice to buyers in SoCal is simple: wait.

Viva los Osos!

HB Comp Killer - 6202 Point Loma Dr

6202 Point Loma Dr Huntington Beach, CA

Sold For: $550,000 (06/27/2008)
Beds: 5
Baths: 2.5
Sqft: 2,276
Price per sq ft.: $242

I've seen a lot of comp killers over the last several months, but this one takes the cake. Five bedrooms, two-and-a-half baths and almost 2,300 sqft of living space in one of the nicer/nicest parts of West Huntington Beach for only $550,000. That, friends and neighbors, is mind-boggling even to me.

At the peak, $550,000 wouldn't have bought you a sub-1000 sqft bungalow fixer-upper, on a busy part of Heil that may have had some foundation issues relative to "liquefaction." Seriously, it wouldn't have.

But, now the proverbial tides have changed and 2,300 sqft can be had in a nicer part of West Huntington Beach, in at least in one instance, so far, for only $550,000.

Now, particular property does have its issues. Even from a drive by the place I could tell that it clearly needed some work; it would be fair to call this house a "fixer-upper." It also backs a "major" street, Slater which means moderate noise. The property is also is at the entrance to the tract which means heavy traffic. Landscape rennovation would be required. Certainly there must be other issues that I couldn't grock on a drive by, but even when you consider all the negatives, this property still sold for only $550,000.

It's just amazing how much more house one can get today in west HB than he could at the peak for the same amount of money. I am actually dumbstruck by the enormity of it all.

(I have more to write about this property. Once I can gather my thoughts and get some work done for a customer, I will hit the blog with an update. Just imagine the impact on comps in the area....)

HB Haircut - 5091 Linda Cir

Beds: 4
Baths: 2
Sq. Ft.: 1,750
$/Sq. Ft.: $357
Lot Size: 6,360 Sq. Ft.
Property Type:Single Family Residence
Style: Traditional
Year Built: 1959
Stories: 1 Level
Area: Northwest Huntington Beach
County: Orange
MLS#: S520813
Source: SoCalMLS
Status: Active
On Redfin: 177 days

***Update: This property went into escrow in the last couple of days; it will be VERY interesting to see what they got.***

This single story cul-de-sac home has been remodeled and was spared no expense in the quality of materials and workmanship used throughout. It boasts nothing but the best. New Custom Landscaping, New Custom Vinyl Patio, Custom New Hardscape, Newer Carpet, Seperate Laundry Room, Recessed Lighting, New Interior doors, Baseboards and Moldings, Solid mahogany front door, Formal Dining Room, New Anlin Energy Efficient windows/sliding door, new central heat and water heater, new paint, new exterior, stucco, and new interior texture. Located in a family friendly neighborhood within walking distance to the distinguished Village View Elementary School and Marina High School.

Original List Price: $749,900
Previous Price: $649,999
Search Price (High): $649,900
Search Price (Low): $624,400

Months ago I toured this property and as the description says, it's a pretty nice home (this kitchen is quite small, however) and on a great little cul-de-sac here in my neck of the woods, West HB. At the time they were asking $749,000 for the home.

At the time, before the comp killers came en masse to West HB, I though the property was worth maybe $660,000 or about $90,000 less than they were asking. Had they priced it at that level, IMHO the house would have sold. But they didn't. Instead they introduced range pricing and brought to price of the home to the $749,000 to $699,000 range--lower, but still more than a prudent buyer would pay.

The house languished on the market and, unfortunately for this seller, the comp killers began to show up soon thereafter. In response, they dropped their price to the $699,000 to $649,000 range, but the price damage from the comp killers had already been wrought and the house was no longer worth $649,000 and so the house sat on the market.

Now they've dropped the price to $624,400 to $649,000 range. And guess what? I think the price is still to high. With the number of CA Option ARMS set to reset and the most recent comp killers, I wouldn't pay more than say $565,000 for the house at this point or about $90,000 less than I thought it was worth originally and about $200,000 less than the original asking price. Now, some knife-catcher might pay more, but that will be his loss; not mine.

Had the seller priced his property correctly in the beginning, he could have walked away with tens of thousands of dollars more than he'll get in the fullness of time. Sellers ought to know by now that pricing a house aggressively is the only way to sell it and that greed is punished severely in the market today.

So here's the take away from today's post. Buyers, if a house seems too expensive, it probably is; be patient, the market will nudge sellers in the right direction. Sellers, if you're not priced well-below the most recent and comprable comp killers, your house won't sell and every month you wait costs you....

Viva los Osos!

Case-Shiller Futures Bear Porn

Beautiful, isn't it? I wouldn't go as far as the kid in American Beauty, but to a died-in-the-wool bear, there is something vaguely comforting about this graph.

Case-Shiller Bear Porn

McCain = Bush = McCain

I've kept the blog largely apolitical, but after watching Obama's masterful speech in Berlin, I had to post this. If you'd like four more years of Bush, by all means vote for McCain.



If you want change then Obama is your man.

Interest Rates Rise, Housing Death Spiral to Ensue

Due to the problems that housing and lenders have had as of late, interest rates for California home purchases have gone up, way up, in the last couple of months. Have a look at this graph from BankRate.com

It shows that the interest rate for a "typical" home in OC has gone up from about 5.7% to about 6.5% since May. When I run the numbers, this translates into a roughly 9% higher mortgage payment! My guess is that this change alone will cause 10 to 20% of those that could have qualified for a loan in May to now be unable to qualify.

Put another way, the recent run-up in interest rates has reduced the effective demand for homes in OC by 10 to 20%. Now, if we assume that housing prices are unit-elastic, this change in interest rates/demand ought to cause home prices to drop between 10 and 20% more.

Then there's the compounding effects of the price/demand declines. If prices drop, more people will walk from their homes. If more people walk from their homes, then there will be more inventory on the market and if there's more inventory on the market, prices must drop to meet demand.

Not to mention the fact that, banks seeing a greater increase in foreclosures might use the same inscrutable logic as they've used in the last couple of months and raise their rates in response, which leads to fewer people qualifying and so it goes...

It's called a death-spiral friends and neighbors and the banks are bringing on themselves with the help of the White House...but guess what? You, me and all the rest of the American tax payers are going end up paying this particular bill in the form of bailouts and every other manner of Republican Socialism the Bushies can muster.

How much more of this crap are we going to take?

Are Your Bank Assets at Risk?

Regulators learned in the 1990s that the higher a bank's Texas Ratio the more likely it is to fail. Is your bank on this list? If it is, move your money. And call mom and dad to be sure that they don't have any money in these insitutions either.




Using this ratio, regulator say as many as 150 financially strapped institutions could fall over the next 18 months. You do NOT want to be one of the "statistics" in this fallout.

The (Un)Natural (De)Evolution of the Blog

As I have mentioned before, the cratering of the OC RE market is now so obvious, I find it uninteresting to comment on it any further. Once things start to turn, I'll be back on topic, but for the moment I still want to blog about something, though I have no idea what.

Until I figure it out, or the market turns, I'll just try out some random concepts and see where they go.

I've always enjoyed the message and simplicity of the "Wear Sunscreen" song. If one were absent a defined moral or ethical perspective, I think one could use its message as a reasonable surrogate, at least on a short-term basis. It is definitely better than MOST ethical systems I have come across.



While "Sun Screen" is fairly light-hearted , Chris has made an even more light-hearted parody of the video. Some might consider it profane; I think it's funny and it contains a few good nuggets of wisdom. Having traveled to Amsterdam as much younger man, I will also offer that based on first-hand experience central premise of Mr. Rock's video is most certainly true...

90% Marginal Tax Rate for the Middle Class

I gave some thought about how those making above $160K (for a couple) aren't welcome to receive the $7,500 First Time Buyer's tax credit and realized that we're actually getting more screwed than I originally thought.

You see, the phase out for this tax credit starts at $140K runs to $160K; so it's a total of 20K in income that determines whether you get the full $7,500 or zilch. It works the same way for the Bushie tax credit: with two kids at $140K in annual income you'd get $1,200, but at $160K in income again, you'd get zilch. That is one expensive $20K in income, but how expensive is really?

On 2oK we suffer the following losses and taxes:

$7,500 exclusion from First Time Buyer's Credit
$1,200 exclusion from Bushie Tax Credit
$7,200 Federal Taxes (would have paid regardless)
$1,800 State Taxes (ditto)

For a grand total of $17,700 in taxes or loss of tax credits or the equivalent of a 90% marginal tax rate. 90%! I defy any reader to find a single group in America that pays the same effective tax rate as this 140K to 160K income group.

Have we all done something to offend those in power? If so, how did we manage to piss off both sides of the aisle and the legislative and executive branches of government at the same time. (Let's remember that is was W who had us excluded from the "stimulus package" and it was Speaker Pelosi who sponsored this lovely First Time Buyers legislation.)

Well, I really don't think we've done anything to offend any one. I'd like to think of it as an 'oversight.' That our lawmaker's didn't mean to screw us and that some of the details fell through the cracks and that the 90% effective tax rate is just a big mistake. And mistake that ought to be rectified immediately.

I've already emailed Bush, Boxer, Feinstien and my Congressman Dana Rohrabacher; I'd invite you to do the same. No group in the US should be asked to pay a 90% marginal tax rate. It's unfair, it's unAmerican and it's anti-capatilist.

Call or write your representatives today!

Feds Set to Screw OC's Middle Class Again!

Many of middle-class families in OC are still stinging from being excluded from Bush's tax rebate program. While many of our friends got checks of up to $1,200, we got nothing. The reason? We made a bit too much money to be included and were summarily "phased out" of that particular gravy train.

Guess what? You're about to be "phased out" again.

Yesterday, the House passed HR 3221 aka the American Housing Rescue and Foreclosure Prevention Act of 2008 on May 8, 2008. This piece of homedebtor rescue legislation spends billions helping those folks in trouble keep their homes, to refinance existing mortgages, for cities buy blighted properties and so on. So, if you're were unfortunate enough to have bought a house that you couldn't afford, the taxpayers are here to bail you out.

You're welcome.

Then there's this little provision called "First-Time Homebuyer Credit" which essentially says that if you are a first-time homebuyer then you can get a $3,750 federal tax credit if you are an individual or $7,500 if you are a couple. That, unless you're middle-class, then you get nothing.

That's right, if, as an indvidual, you make more than $90K a year or a couple that makes more than $160,000 a year, then your tax credit amount falls to zero. Zero as in nothing. Zero dollars, zero help, zero consideration by your legislators. Zero, just like the tax credit you got as part of the Bush stimulus package.

That's right, once again the Congress has left the American middle class out in the cold. If you're Bear Steans, the feds fall all over themselves to throw our tax dollars at you. Buy a house you can't really afford, never mind the feds will finance it for you at taxpayer expense. But work hard, attain some level of success and then exercise fiscal responsibility and all we get from Congess is a big F#@K YOU!

The middle class pays an egregious amount of tax. We're in higher tax brackets based on what earn, but lack the resources and tax shelters of the rich; so we're left paying more than those less fortunate than us and more than those more fortunate than us. If anyone needs a f@#king tax break is it us, the middle class. But yet again, we're left out in the cold.

As you can probably gather, I am mad as hell about this and I'm not going to take this sitting down. I'm getting ambiguous information on the state of the bill in Senate at this point, but if hasn't passed yet, I am going to call my Senators and give them a piece of my mind. If it has, I am going to place a call to W's office, supporting his presumptive veto. Once I get this sorted out, I will post my efforts to this site.

I am going to be damned clear that the tax credit phase out, as written, is affront to the middle class in America. I am going suggest either doing away with the income restriction all together, raising the limit to $125,000 per indiviual or $250,000 for a couple--that is to say, inclusive of the middle class.

Once I get this sorted out, I will post what I've found and names and numbers of those we need to hold account here.

This is bullshit and I am not going to take it any more.

You shouldn't either.

Why are OC Inventories Flat?

I've seen some anecdotal evidence that inventory levels of are essentially flat since the end of January this year and on year-on-year basis as well. This causes me a great deal of cognitive dissonance; it may do the same to you.

As examples, I'll site the inventory graph from IHB which show inventory levels flat for Irvine and the OC inventory numbers found on Bubble Tracking which show inventory flatness for OC.

If you have a close look at the OC inventory data, what you're going to see is that according to Redin on Jan 30, 2008 there were 17,151 homes for sale in OC; on April 30 there were 17,358. A couple of hundred more homes in April than January, a bit more than 1% which I would call essentially flat. So for the year, inventories are essentially flat.

Even if you don't consider the 1% increase to "flat", I'd point out that in the same period in 2007, we saw inventories rise 28.5% rise from roughly 13,200 units to just under 17,000 units and that historically a rise in inventories as we enter Spring is typical. But this year we don't seem to be having any seasonal run-up inventories.

And, I'm sure you've already noticed the coincidence that we have roughly 17,000 homes for sale both now and one year ago as well, meaning of course that inventories on OC are flat on a year-on-year basis as well.

I have to say this is strongly counter-intuitive to me. I mean, we have only a trickle of homes being sold compared to last year and I would expect almost every other year on record, showing that demand is weak. On the other hand, we also have a glut of bank-owned, short-sale, foreclosure-avoidance properties on the market meaning that supply, at least for those segments of homes, is strong.

So, I pose these questions to readers:

Doesn't weak demand and strong supply at least [i]imply[/i] that inventories should be on the rise?

And if not that, then shouldn't we at least have our normal, seasonal run up of inventory?

Is it the case that a lack of "discretionary" home sales have lead to stable levels of inventory?

Does anyone have any OC-level data that shows something different? Maybe from the MLS?

Any information or insight would be welcome.

Moving On...

Today is my last day with my current employer. With that in mind, I've pulled some of my favorite work-related video clips together for your viewing pleasure. Enjoy.

Contest: Predict the Day the OC Median Drops Below $500K

I'd like to have some fun and encourage some discussion here on the blog; so I am going to sponsor the first-ever OC Prudent Bears Real Estate Prediction contest. Here are the rules.

Readers of the blog will try and predict the day that the median price of the Orange County All Homes Median Price as reported by DataQuick will fall below $500,000.

1. Readers are to add a comment to this post that includes the date that he predicts the median will drop below 500K and their nickname as they are generally known around the RE blogosphere. (See example prediction in Comments section)


2. The reader guessing closest to the actual crossover date (actual event date, not reporting date) will be considered the winner.


3. If two or more readers guess the correct day, the reader who entered his guess first/earlier will be considered the winner.


4. Readers can revise their guess as many times as they like, but only a reader's last and latest prediction will be considered for purposes of determining if he is a winner.


5. Winner will be announced as soon as practical following the $500K median crossover date.

For the hell of it, I'll throw in a Starbucks gift card for the first place winner. If anyone else has a "junk drawer" item they'd like to throw into for a prize, let me know.

It's Funny Because It's True

Another classic posted by Trooper on IHB.

Oh, and Treasury Secretary Henry Paulson, feels as thought the "worst is just beginning" for housing which, depending on your perspective may or may not be more funny than the comic above:

Bernanke Bearish on Economy

Helicopter Ben seems more than a bit dour on the prospects for the economy:

"The outlook for the economy has worsened in recent months, and the downside risks to growth have increased," Bernanke said. "To date, the largest economic effects of the financial turmoil appear to have been on the housing market, which, as you know, has deteriorated significantly over the past two years or so." Bernanke also said that the "virtual shutdown" of the market for subprime mortgages — given to people with blemished credit histories or low incomes — and a reluctance by skittish lenders to make "jumbo" home loans exceeding $417,000 have aggravated problems in the housing market.

Unsold homes have piled up and foreclosures have climbed to record highs.

"Further cuts in homebuilding and in related activities are likely," Bernanke cautioned.

Read the full story here....

S&P: LA/OC Home Prices Set to Drop 17% in 2008

If there are small children or LA/OC homeowners in the room, you might want to have them leave before you have a close look at this chart:

I think we've covered the methodology for interpreting this kind of chart frequently enough that we can dispense with any explanation. The net-net is that the S&P futures market is predicting that real estate prices are set to drop in the an additional 16-17% in 2008 in the LA/OC market.

With the current median selling price at just under $600,000 for the median existent SFDU in OC, that means that we can expect to see prices drop an additional $100,000 for a median EOY 2008 price of just under a half-million dollars.

I will write more on this topic later, including the fact that these S&P number align very-closely with reader-poll-derived predictions from this blog, but I have to head out to Costco and pick up a bottle of Dom for me and Mrs. HB Bear. We have some celebrating to do.

Viva Los Friggin' Osos!

A Little Fed Humor for the Weekend

A great find from our friends at the Irvine Housing Blog.

Just hilarious.

Shiller: Current Housing Bust Comprable to The Great Depression

If you are buying or selling a home, the video below should be considered mandatory viewing.

Readers Say Prices to Drop 15 to 20% in OC!

The results of January's reader poll are in and they paint a very dismal picture for OC's housing prices for 2008.

Thanks to everyone who voted in the January poll regarding their predicition on this December's YOY pricing change. While being a died-in-the-wool bear myself, I have to admit that even I was a bit surprised by the outcome as reader's of this blog have an such an overwhelming negative view of pricing strength here in OC.

As one can see from the chart above, the most common sentiment (30%) expressed in the poll (the mode) was that prices in OC were set to drop between 16.1 and 20%. The weighted average of the votes (the mean) expressed that readers felt collectively that prices would drop 15.6%.

If you recall, the median price dropped in OC 10.2% between Dec2006 and Dec2007. So, the largest plurality of poll respondents seems to believe that this year prices will drop between roughly 150 to 200% as much as last year! And on average they expect to see prices by 150% as much!

Pricing optimism was very hard to find in poll responses--only 11% of respondents felt that prices in OC would drop 8% or less this year; actually, more respondents (14%) think prices will drop 24% or more!

All things considered, I would offer that this crowd on the whole seem to believe that prices will drop between 15 and 20% this year. Quite a drop and quite the boon for bears if our collective wisdom is correct.

Stock Market Sees OC's Economy as Weak

From the Bloomberg.com website:

BLOOMBERG ORANGE COUNTY SNAPSHOT

"The Bloomberg Orange County Index is a price-weighted index designed to measure the performance of Orange County's economy. The index was developed with a base value of 100 as of December 30, 1994."

The most-current performance is plotted here:

If Bloomberg is correct and this collection of local stocks is reflective of OC's economy, it would seem as though the stock market has a very poor opinion of our short term prospects.

Last year we actually had a net job loss here in the county, is the stock market predicting more?

New Poll: Where are Prices Headed?

The last pricing poll had too many votes toward the high end of the scale, so I've rejiggered the categories to be more expansive and inclusive of higher rates of decline.

Please vote again!

Lies, Damned Lies and Realtor "Statistics"

I went to an open house in my neighborhood today, just to check it out. While I was there the realtor made the comment that "any home purchased in OC has appreciated over a five period." I'm not going to call the guy out by name, though I am tempted to, but I am going to call bullshit on this oft-cited "statistic."


Have a look at the chart above. It shows the Case-Shiller index for LA/OC for the period Jan 1990 to Dec 1999. The line in this chart shows the relative price for homes in the area on a monthly basis. Does it look like a house purchased any time in 1990 had regained it's value 60 months later? How about 1991? or 1992? No, no and no. In fact, it's not until roughly the Spring time frame of 1993 that they typical home purchased would any appreciation over a five-year period.

Put another way, for roughly 39 months starting in Jan '00, the typical home did not seen any appreciation over a five year period. In fact, for the poor bastards who bought in Jan '00, had to wait 10 years for the market to just break even. Seems like our Realtor's claim collapses under the weight of data/facts.

What's even more important, loyal Reader, is that the aforementioned period was at the beginning of that downturn and maps EXACTLY where we are with today's downturn. If history is any guide, I submit to you that it is more downside risk in buying a home today than any time in since 1990, or the last 18 years. (Will have to write more about this later.)

Another Realtor myth laid to rest, another self-inflected head wound to Realtor credibility.

Viva los Osos!

Off Topic: Lester Burnham and Mike Huckabee

Have you ever noticed how you never see fictional American Beauty character Lester Burnham and presidential hopeful Mike Huckabee at the same party?



Coindence?

Maybe, maybe not.