If I would have told you even a year ago that we would be seeing the Southern California median home price at $285,000 many of you would have laughed and rightfully so. Yet we now know this will be the worst recession since World War II, 10 major indicators now tell us this. Even the most ardent and loyal bubble believers probably had a hard time envisioning a correction like the one we are experiencing. I know. I was one of them. As I look back at some of my articles, it wasn’t that I didn’t see a steep correction occurring but the current velocity of the decline has taken my breath away like reaching the apex of a rollercoaster only to freefall.

So what pushed California over the edge in 2008? After all, many of the factors hitting the market today were present in 2007. Why this year? It is hard to put your finger on simply one cause for this correction. I’ll give you a few that really accelerated the decline:

(a) Toxic mortgages like option ARMs took away the leverage borrowers once had.

(b) California tipped into a more deep recession than the overall national economy.

(c) The bubble simply collapsed on its own weight.

(d) Mortgage resets and price declines provided no exit for over leveraged borrowers.

(e) Consumer psychology shifted. With fears of the economy and more people having their religious bubble moment, the urgent desire to buy is now gone.

(f) Stockpiles of foreclosed and REO homes.

These combined with the awful global news combined to make a perfect storm. As people are focusing on more macro issues, I decided to do a quick check in Los Angeles county to see what is happening in specific niche markets. Would you believe it that 3 zip codes now have prices in the five-figure range? Or what about 15 zip codes with prices under $200,000? Let us first take a look at the list:

81 percent decline! Okay, this is a small obscure area way off in the mountains with approximately 3,000 people but seeing a 81 percent decline is stunning. But look at Palmdale and Lancaster. These areas have been absolutely hammered. Many of the home sales in these areas were to commuters looking for the pleasure of homeownership during the bubble heyday yet many of these buyers never had the ability to purchase in metro L.A. or surrounding cities. Many brave souls decided to sacrifice a mind-numbing commute for the ability of owning a home. I look at these price declines and it only makes me reflect at the power of mania in epic bubbles. Logic is thrown out the window.

I still believe that we won’t see a housing bottom until 2011 although given the current speed and velocity of the price correction, we may actually see trough prices in 2010 yet they will carry over into 2011. I’m baffled by people putting a bottom on 2010 thinking it will somehow bounce like a basketball after it reaches that price. It won’t. I think we’ll be looking at prices moving sideways essentially like Japan given that we are emulating virtually every policy move they did which led up to their lost decade(s).

You may argue that many of these areas are unique. Yet in the list we also have a zip code in Long Beach, a few in Los Angeles, and Hawaiian Gardens. For anyone that truly understands Los Angeles, the difference in one or two numbers in a zip code is a world of a difference.

Los Angeles County is the most populated county in the state with nearly 10,000,000 people. In this giant metropolis we have 88 cities and 270 zip codes. Cities like Los Angeles and Long Beach have multiple zip codes given their geographic size and large populations. Another interesting data point that I found looking at the 270 zip codes is this startling fact:

15 zip codes have now witnessed 50+% declines

Many more zip codes have already breached the 50 percent decline from their peak but on a year over basis, are down 40 percent. You may be thinking that this is only hitting more lower priced areas. That is not the case. This bubble is an equal opportunity price destroyer:

How appropriate that Calabasas, home to uber-toxic-mortgage poster child Countrywide is now seeing a 50 percent decline. Let us now look at 3 homes in the five-figure zip codes to see what we can get when we go bottom fishing. Today we salute you five-figure priced homes in L.A. County with our Real Homes of Genius Award.

Lake Hughes – The bubble will find you even in the mountains

L.A. County has some random zip codes and areas that many people wouldn’t suspect as part of the county. Lake Hughes is one of those. Located up in the Angeles National Forest, this is a very different world from the concrete jungle that is Los Angeles. This is a very small community and how prices got to where they did is beyond me. How far is Lake Hughes from L.A.?

67 miles in L.A. traffic is like 300 miles anywhere else in the country. You might as well purchase a helicopter to commute. I doubt you’d be community from here anyways. The above home is currently a foreclosure with 1 bedroom on 964 square foot of land. The current asking price is $97,500. Yes, five-figure homes in L.A. County are here and we’re only at the end of 2008.

Palmdale – Party like its 1996

The Lake Hughes property is more of an anomaly but here we get into our more bread and butter Real Homes of Genius. This home is a 3 bedroom and 2 baths home sitting on a rather large 1,595 square feet. It has a gigantic lot size of 22,000 square feet. I thought they weren’t making anymore land in L.A. County?

This home can be all yours for the wonderful price of $39,900. That’s right. For the price of a new car you can call this place, home. Now before you go running off to buy this place let us dig up some sales history here:

09/30/2008: $101,530 *

01/06/1997: $71,000

06/24/1996: $40,000

Party like its 1996! We’ve rolled back prices to the bottom of the previous Southern California housing bubble! Looks like the bank took this place back in September of 2008 when someone decided to jump on the mortgage equity withdrawal train. Party is over folks.



Lancaster – Nothing says happy holidays like boards on the window

Before you start feeling sorry for these homes, you need to dig into the details and you’ll realize people were digging into their homes like ATM machines. This Lancaster home has 3 beds and 2 baths and is situated on 1,572 square feet. Big homes for bargain prices. The current list price of $61,750 may seem cheap, but I found a dozen more in this area in the $40 and $50 thousand range. Prices now matter and people are paying close attention.

I love how the ad tells us this is a “contractors special” since the windows are boarded up and the grass is yellow like the blistering Lancaster sun in the summer. If you run the numbers, this place is selling for $39 a square foot! At the peak you were lucky to find faux granite countertop for this price. I love how the ad also tells us this place is “centrally located” – centrally located to what is the logical follow-up question. Let us look at some price history:

Sale History

10/24/2008: $101,156

04/23/1997: $46,000

07/18/1996: $42,630

Someone got busy either refinancing or pulling equity out. Given the last price, I would think it was an equity withdrawal situation. If you look at many homes in Palmdale and Lancaster you’ll see a similar pattern. Some foreclosed homes will have a sale price of say $30,000 in 1999 then you’ll see a foreclosure noticed posted, the home is for sale at $40,000 yet the price at which the lender took it back was at $110,000.

With so much economic news being thrown around, it is easy to sometimes forget what caused the bubble. Look at these homes and you’ll completely understand why things are unfolding as they are. Today we salute you L.A. County five-figure homes with our Real Homes of Genius Award.

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