There has been a great debate going on in the comment sections these last few days. I’m not sure if the coming election is getting everyone fired up or is it the sound of crashing home prices that is getting everyone riled up? Regardless of who you are going to vote for the reality is, whoever inherits the Whitehouse come January of 2009 is going to face an economic downturn unlike anything we’ve seen in multiple decades. Sure, the politicians keep on smacking their lips saying, “well, we aren’t sure we’re actually in a recession” while everyone with a pair of working eyes is seeing a drastically different reality.

We’re getting so many mixed messages you’d think we are living with a bipolar partner telling us they love us today only to smack us upside the head in the morning. For example, first we get this sloppy across the board stimulus package rammed through with really no thought put into it. Now, surveys are showing that anywhere from 15 to 20 percent of people are actually going to spend their rebates! The rest is going to debt reduction and savings. Great planning here. $145 billion down the drain. Then this week, we have the Whitehouse threatening to block the ability of judges to rewrite mortgages. Of course, this has the massive support of lenders because a judge reworking a loan at today’s current market prices would force a lender to eat their own toxic mortgage crap instead of buying time for a government bailout. We already have caps being raised, reserve requirements being dropped, and big money lenders begging the government to offer a bailout. And by the way, the two main players that have any remote chance of bailing out the housing market, Fannie Mae and Freddie Mac just posted record quarterly losses. This before we give them carte blanche and lower their reserves. More excellent planning. This higher risk will push up rates even higher! Why do you think even as the Fed chops rates like Paul Bunyan, 30 year fixed rates aren’t moving? How much is this going to help if people don’t really care and are simply walking away is yet to be seen. No behavioral economic models factored that variable into equations.

As many of you know, I do pride myself in showing you the excesses of this housing bubble through our Real Homes of Genius series. In fact, even in the days when the majority were smoking housing peyote, all I had to do was take a weekend drive and realize that something didn’t jive in sunny Southern California. I don’t get a kick out of seeing someone who bought within their means, has a modest mortgage ($90,000 to $210,000) and has lost their job or is now unable to make the house payments. Yet I do find myself shaking my head when someone purchases a 500 square foot box, slaps a granite countertop, puts on some faux faucets and expects to make a $50,000 profit for one month of work. I have found homes that have fallen from 10 to nearly 50 percent in California when many said this would never be possible. Well today I have to tip my hat to a keen eyed reader who found the biggest drop I have yet to see in California. Today we salute you Oakland with the Real Homes of Genius Lifetime Achievement Award.

Real Homes of Genius – Oakland Style

If you haven’t noticed, this blog is niche focused on Southern California when we do our Real Homes of Genius series. There have been a few issues that focused on the national housing bubble with overpriced homes in Florida and Washington D.C. being highlighted. Today, our siblings up north show us the true excess of the housing hyperinflation. This home is nestled in another multi-million dollar city of California, Oakland. To appreciate the extent of this housing bubble, you really need to do a field trip. Pack the family in the car and take them on a trip to the inner cities of Los Angeles and you’ll find yourself realizing that something went completely awry when the median price for this region hit $550,000. Sure you can be myopic and assume Santa Monica and Brentwood equals all of Los Angeles County but reality is now coming into a collision with fundamentals. Back to Oakland, this gorgeous 800 square foot home has seen a lot of action in the last few years. In fact, just like digging up fossils from the past to realize that dinosaurs roamed the Earth, we can now dig up mortgage remains that show us that human nature is capable of unbelievable financial acrobatics. Let us take a look at the sales history on this home:

Date Sale Price

Sep 03, 1991 $45,000

Jan 20, 2006 $407,500

Jun 26, 2006 $450,000

May 24, 2007 $310,250

You may be asking, so what’s the big deal here? A drop of $139,750 isn’t unheard of and we’ve had other examples that have shown steeper nominal drops. The shocking part of this place is the current sales price which is, get this, $95,000! That’s right folks this place has seen a…

78.9 Percent Loss in California

I have seen 40 and even 60 percent losses but nothing that approaches the 80 percent region. You may be thinking that this is some sort of pricing gimmick but they did start the place out at $109,900 and reduced it shortly. This by far is the highest percentage drop thus far in the housing bubble burst and playing pricing games in lower to middle income areas especially in California will get you absolutely nowhere in this market. At the current price, this home might not be such a bad deal. Local area rents go for $1,050 to $1,100 so you may even have some cash flow here. Then again, I’m not familiar with the details of this particular area of Oakland. There are places in Detroit selling for the price of used cars but that still doesn’t make it a wise deal simply because the local economy is in shambles. Expect to see the unexpected in the next few years.

Today we salute you Oakland with our Real Homes of Genius Lifetime Achievement Award.

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