Sunday, May 31, 2009

California: To Hell In A Bucket

This is my ex-neighbor's house.
Originally purchased, newly built, in February,2007
It went back on the market, as a repo, ten days ago.

Five bedrooms, 3 bath, 3490sf.
Original purchase price: $486,000
Current asking price: $218,000

Earlier phases of this development were sold for about $100,000 more than these before the market started to show signs of softening. Those are showing heavy rates of repo as well as these in my tract are.
Currently, out of twenty homes on my side of the block, fourteen have already been resold as repos, are currently bank owned, or are soon to be returned to the bank.

This is part of the problem in California's budget mess:
Anybody with a working brain could tell you that 15-25% yearly increases in home values was not a sustainable situation when you actually stop to figure in the types of lending practices that were driving the housing market.
In California, property taxes are based upon most recent selling price of the home, not current market value. The tax is equal to 1% of assessed value. Also, a home purchased for a higher price is entitled to a reassessment at lower values when the market takes a dip.
SO, everybody in my neighborhood just had their property taxes cut in half, or better.
Increases in assessed values cannot be recaptured at higher than 2% per year. At this rate, assuming these properties do not change hands, it will take 36 years before these homes can be taxed at their original selling price, and this process cannot even begin until overall property values begin to rise.

So, all those $500K homes are now being taxed as $250K homes (or less), resulting in tragic losses of projected income for the counties and the state who rely upon it.

With the economy basically in the shitter, and unemployment above 10% and climbing, there will be fewer people able to afford the inflated prices their mortgage reflects, and more overpriced homes will continue to flood the market.

California, being governed by the weakest and feeblest minds politics can buy, took advantage of the housing boom years, and all of the windfall tax revenue increases as nearly every pre-existing home was flipped at the ever increasing prices.
Yeppers, you guessed it: they inflated government spending, added new programs, and rewarded their political benefactors.
And they did it with orgasmic delight, never stopping to think that the party keg just might run dry.


kr said...


Irony at the end of the last 30 years: According to local asking prices, I could sell my one bath, 2000 sf home in an average part of Portland and have a hefty profit if I moved to CA and bought your neighbor's house.

Jade said...

kr - that's the reverse of what a lot of Californians did over the years.

That housing bubble is why we never bought in Santa Cruz... we refused to spend 680k on what was basically just police-tape short of a crack house, and we got tired of waiting for the inflated bubble to burst.

As I look today, SC has one house on the market, and 159 foreclosures - damned things are still exceptionally overpriced (900k for a thousand square feet?!?)

We never understood why people kept buying houses at such inflated prices. We thought if everyone just stopped - refuse to pay a shit-load for a shit-house like we did - the market would have lowered to a reasonable level. But rather than say "these are my means, what can I do with it?" they went to banks and said "that's the house - how can I get it?" They took on horrid loans that started out with low payments, but ballooned within a few years - figuring they would never have to make the bigger payment because they could just flip the house to some other sucker looking to "break into the market" - then take their imaginary equity and dump it into another overpriced house.

I'm not a math genius, and I know little of real estate - but for fuck's sake I saw that coming from a mile away.

Brian said...

I once interviewed with a biotech company in SoCal. I was told that part of my signing bonus would be be a loan of up to $125K at 3% annual interest, so that I could go ahead an buy a $500 house right away even if I didn't have a down payment. And of course, I'd be a fool not to take it, because there was no way any home I bought was going to appreciate at less than 3% a year.

That was in 2006.

Gino said...

kr: and then we can do our arguing over the fence.

jade: most of those who bought were buying out of fear that they would never get a chance with the prices rising so fast.
those who bought to flip were out of the game by 05. i saw something happening around then, homes not moving as fast,etc... that showed the peak was near, if not there already.

brian: in 06, 500k wouldnt have gotten you much near any kind of population center. 1300sf,maybe. 3br, 1.5br. built in the late 50's, no a/c.
what city was this company in?

kr said...

and then we can do our arguing over the fenceyep--pretty horrifying thought ;). You have to wonder what the neighbors would think, when you get the next batch in :).

I'd probably get all sunburned, though, as long as I go on (and on) for ;). Global warming's got me toasty enough up here; if I move, I ought to move north instead ;). Stay in the land of cloudcover depressing enough to guarantee a good selection of gourmet chocolates in grocery stores and stand-alone shops: Ah, home sweet home ;).

Speaking of which, I need to make the shopping list for tomorrow. I'm out of chocolate (kel haror!), and I need a 25' hose so I can siphon the kiddie-pool (and water the trees) instead of bailing it (and watering my backmeadow).

Jade said...

Gino - yeah we were shopping in CA around 2002-03 - people were still flipping houses, though the guys I worked with in San Jose felt the bubble about to burst, and sold their condos (one of them went for 650k I think?) to move up north to Portland.
Dan refused to buy out of fear - in regards to where we live, he is particular.

We actually started house shopping way back in 1996, and never did find a house that he really wanted to own - even for a short while - until this one in 2004.

Brian said...

Thousand Oaks, which pretty much tells you which company it was...I seem to recall there were some ~1000 square foot condos available there for $350-400K, but I almost certainly would have rented in any case. Possibly as far away as Santa Monica.

Bike Bubba said...

An apt reminder is that the word "finance" derives from an Old French word for a "ransom" or "fine," and your credit score doesn't mean you're a good credit risk. It means you're willing and able to pay interest.


Guitarman said...

And for us sorry souls in the architectural planning industry. The only building going on right now are schools and municipalities. And guess what, with revenues way down from declining real estate values, they can't justify building either!