Tag Archives: bubble

How to lose $620,000 in 5 years

It’s really simple, just buy this place in the middle of a massive cheap money binge:

10085 Lesterford Ave Downey, CA 90240

Date Event Price Source
Oct 27, 2010 Listed $350,000 MRMLS #M10113549
Aug 27, 2010 Sold (Public Records) 
This home was foreclosed and bank-owned.
$847,667 Public Records
Sep 15, 2005 Sold (Public Records) $970,000 Public Records
Aug 06, 2004 Sold (Public Records) $715,000 Public Records

Someone was actually able to get close to a $1,000,000 loan for this place. That’s about a $4500 a month payment before property taxes and PMI. Who wants to bet that this mortgage got bundled into a security now owned by Fannie and Freddie. The banks, brokers and Realtors© were able to push all the risk off to the taxpayer while reaping big commissions. This was done at the direction of Congress to loosen lending restrictions in the name of “affordable housing”.

Hey the upside is you can get this place with graffiti included for cheap now.

What the housing bubble looked like up close and personal

Price trend of Quill Condos in Downey using data from Redfin
Price trend of Quill Condos in Downey using data from Redfin

I thought it would be interesting to look at the sale prices of condos in the condo complex where we rent in Downey, CA. The graph speaks for itself. Prices in Southern California were completely out of touch with reality. Look at the bubble in the early 90’s. Prices only went up by 50% and then declined for 6 straight years. In this last bubble, prices increased nearly 350% between 2000 and 2007. Much of those gains have been wiped out in 2 years since the bubble burst.

This graph is quite useful because it is comparing identical units (~300 sq. ft. max difference) in close proximity to each other. Expanding the comparison to Downey as a whole would introduce comparisons between dissimilar homes in substantially different neighborhoods. It doesn’t make much sense mixing the large sprawling homes of Northeast Downey in with the tiny houses south of the 105.

Does anybody really believe prices will continue to trend upwards with high unemployment, shadow inventory twice the size of what is listed and the upcoming wave of Option ARM recasts? Good thing Congress extended the $8,000 credit, wouldn’t want housing to be affordable.

Did things get as bad as I thought?

Back in August of 2007 I wrote this post, Someone forgot to refill the Real Estate ATM, and predicted that we would see a continued drop in prices, foreclosures would go up and so on. What I didn’t see coming was a big drop in the stock market, sharp increase in unemployment and the massive expansion of government into the financial and mortgage markets. Things are definitely worse than I thought they would be.

The Downey Housing Bubble

Dr. Housing Bubble featured Downey this week in an edition of Real Homes of Genius that shows just how screwed up things are in housing right now. I couldn’t buy a house even if I wanted to and it’s not like I’m making minimum wage. As long as prices are out of touch with people’s incomes prices will drop and drop. And on another note I don’t think the fact that we just hit a 2 year unemployment rate high is completely unrelated.

“The greatest weakness in December employment came from sectors battered by the housing slump: construction payrolls lost 49,000 jobs, while manufacturing fell by 31,000 and financial services employment declined by 4,000.”