Today we are going to highlight the story of a home in Santa Monica that chronicles 15 years of Los Angeles County housing history. A home that has experienced two housing bubbles and is still feisty and hungry for another one. For a city with 91,124 people, you would think given the media coverage that a larger number of the 10,000,000 residents of the county would live in this area. Clearly, they do not. Very few cities exemplify the California housing mania quite like Santa Monica. It had the perfect brew to intoxicate a number of would be real estate moguls and L.A. status fighters. The trajectory of housing prices in Santa Monica seemed to defy the laws of physics and dared gravity in the face to pull it downward.

Before I detail the home to you, I have gotten a few e-mails regarding my article posted on August 6 detailing the 10 reasons how the California housing market will be in the doldrums until May of 2011. Most of the questions concern the massive government intervention and how it will influence the current housing market in California. Let me quickly sum up the 10 reasons and how all 10 still apply today:

(1) REO and foreclosures still growing

(2) Pay Option ARMs hitting peak recast periods

(3) Living rent-free while the foreclosure process works its way through

(4) FYI – California is in a major recession already

(5) Federal Reserve and U.S. Treasury throwing money in the wrong places

(6) Income to price ratios still out of whack

(7) L.A. County has a renting majority

(8) Demographics point toward more demand for affordable housing

(9) Feedback loop from being too dependent on real estate for our economy

(10) Consumer Psychology and why buy today when tomorrow will be cheaper?

All these 10 reasons still apply. I have gotten a few e-mails highlighting how notice of defaults and foreclosures have slowed down in the last month. Much of this trend is due to the recent signing of SB 1137 which requires lenders to contact homeowners multiple times and then waiting 30 days before filing foreclosure notices. Here is part of the text:

“Until January 1, 2013, and as applied to residential mortgage loans made from January 1, 2003, to December 31, 2007, inclusive, that are for owner-occupied residences, this bill would, among other things, require a mortgagee, trustee, beneficiary, or authorized agent to wait 30 days after contact is made with the borrower, or 30 days after satisfying due diligence requirements to contact the borrower, as specified, before filing a notice of default.”

So how does this really help someone with a large oversized mortgage? It really doesn’t. It looks good for one or two months of statistics but simply delays the inevitable. In addition, the bill requires legal owners of the foreclosed properties to maintain the home or face a $1,000 per day fine. Many times if it is a REO, the bank takes the property back. Do you really think banks have the money to become a major property management company? Of course not. That is why they are going to the bank of Uncle Sam on a daily basis to tap credit lines. Amazing how those responsible for the bubble still have access to credit. Although the bill is good intentioned it does very little to address the fundamental core issues of what is going on. That housing prices are still too high for the current population.

Real Homes of Genius – Santa Monica Edition

This home takes us to the Republic of Santa Monica, as many comrades in the Southland affectionately know it. Santa Monica was the source of many housing porn rehab shows and almost provided a self-indulgent congratulation celebration on the virtues of using pastel colors on your wall and infusing jet streams into your bathtub to wash away the hard work of defrauding people into unsupportable mortgage products. Those really leave a dirty stench. The art of fixing up homes seemed to actually have a workable and successful pattern. “If I add a stainless steel mega industrial strength refrigerator and recessed lighting, we can add $50,000” the housing “experts” would tell us. Of course this was all part of the delusional housing bubble world and many convinced each other that yes, the Kool-Aid was delicious and refreshing. Please, take a sip from the newly installed fridge.

This 3 bedroom and 2 bath home was built in 1954. It is 1,319 square feet and has been on the market for 1 day. We are told that there is an attached garage if any comrades have a hard time actually looking at the picture. And once again, if you look closely at the picture we will see the patented garbage can 2.0 photo technology at work:

This wouldn’t be so shocking until you realize this place has a Zestimate of $1,447,000:

Now really, does this place look like a $1.4 million dollar home? Seriously. But when I put on my 2006 customized housing bubble goggles I am quickly able to see the absolute potential here. What was I thinking! A touch of new paint, a little bit of landscaping, and next thing you know we have a $2 million home. This is housing economics 2.0 right?

This home sold many times over 15 years. Starting in 1993 we will chronicle some headline stories in the L.A. Times and also place the sale price of the home as well. Ready for this fantastic journey? Let us begin.

Sale in 1993: 05/27/1993: $290,000

Bottom Line: Housing Market May Be Mending Real Estate: Despite a three-year slump, experts say prices are stabilizing, especially for homes under $500,000.

PATRICIA WARD BIEDERMAN; Los Angeles Times (pre-1997 Fulltext); Aug 22, 1993; pg. 1

A sad Westside story: Home prices have declined up to 50% since late 1980s

Myers, David W; Los Angeles Times; May 28, 1993; D; pg. 1

Indeed it was a sad Westside story. This poor home only sold for $290,000 after the Southern California housing bubble of the late 1980s popped. It has now been a few years since peak prices and people are thinking that a bottom is in sight. Keep in mind that in our current bubble, the Los Angeles housing market didn’t peak until the middle of 2007. That is, we are only 1 year from the peak. But have no fear, after people got burned they got hungry for another bubble and this is when things really got interesting.

Sale in 2001: 09/18/2001: $417,500 +$127,500

After 8 years, this home finds itself being sold at the beginning of the epic California housing bubble. Little did this seller know that this home was going to be on an amazing journey into Dante’s version of the housing inferno. You’ll love some of the headline articles during this time:

The Nouveau Austerity; The post-Sept. 11 mantra may as well be: If we quit shopping, they win, right? Those with money are still spending, just quietly.

SHAWN HUBLER and MIMI AVINS; Los Angeles Times; Dec 16, 2001; E.1;

THE NATION; Enron Was Warned of Violations, Auditor Says

RICHARD SIMON;THOMAS S. MULLIGAN; Los Angeles Times; Dec 13, 2001; A.1;

You would think given what was going on during this time that people would be more careful with their finances. Yet this notion that we had a patriotic duty to spend beyond our means or “they” will win took hold. Alan Greenspan lowered rates to ridiculous levels and took us from the tech bubble to the housing bubble without skipping a beat.

Sale 2002: 09/16/2002: $476,000 +$58,500

One year later this home sold for a$58,500 profit. Not bad given that the median household income of those in L.A. is approximately $50,000. At this rate, why work when you can live off the appreciation of your home?

Realty companies thinking globally

Mary Umberger; Los Angeles Times; Dec 1, 2002; K.11;

Bwahahaha! Oh I bet realty companies were thinking globally. Now a few years later we are in a global mess. 2001 and 2002 saw the seeds of the bubble take hold and this is when the snowball really started gathering speed and size.

Sale 2004: 10/28/2004: $696,000 +$220,000

Wow. Now, our 2-year appreciation gain is nearly the price of the home in 1993. We have now made $110,000 a year from simply living in our home. Isn’t life grand? Even if life isn’t grand we just made a few. Now we are making twice the median household income of households in the county. No bubble here right? What were some people saying?

No Sign of a Housing Bubble, Study Says

Los Angeles Times; Jun 23, 2004; C.6;

Builders Keep Putting Up Housing — but Not Enough

Annette Haddad; Los Angeles Times; Aug 3, 2004; C.1;

Home buyers ante up; In Las Vegas, the big gains aren’t just in the casinos, they’re in the housing market.

Allison B. Cohen; Los Angeles Times; May 30, 2004; K.1;

The middle-class housing squeeze; The high cost of homes is pricing many residents out of the California market. Some are staying in rentals, and others are leaving the state.

Allison B. Cohen; Los Angeles Times; Mar 7, 2004; K.1;

At this point people are drawing lines in the sand. You either drink the Kool-Aid and believe housing prices are justified or start realizing we are in a bubble. Take a look at the four headlines above during the year. One argues there is no housing bubble. Good job on that call. One of the articles compares housing to a Las Vegas Casino. The L.A. Times is a mainstream paper and we still get revisionist pundits trying to say that no one saw this coming today. This was 2004. Just because a bonehead pundit had the lack of foresight does not mean others did not see what was coming down the pipeline.

The next sale is when we hit hyperspace and go into weird cult world and prices simply go completely unhinged from any semblance of reality:

Sale 2006: 11/22/2006: $1,100,000 +$404,000

2-more years and we are now making $202,000 a year by simply sitting in our home and watching the grass grow. At this rate if we follow this pattern, we will sell the home in 2008 for $1,700,000 for a nice $600,000 profit. I like this math. We’ll keep selling the same home over and over and each time the price will get hyper inflated. At this point, we are in another galaxy of logic and rules. The cult herd mentality is now in full speed and you have a school of new believers that actually think these prices justify some new form of back of the napkin economics. This is where we get a mix of reality based articles and those who finally fly off the real estate religion cliff:

The Nation; Housing Speculators Relocate to Hotter Spots; Some who scored with L.A.-area property take their profits to Las Vegas and Arizona. Their flight may soften the local market’s landing.

Annette Haddad; Los Angeles Times; Mar 18, 2006; A.1;

The State; Inland Empire: Where the L.A. Dream Landed; The region, once a blue-collar bedroom community, is creating its own good jobs. Now its upscale amenities and housing rival the coast’s.

Roger Vincent; Los Angeles Times; Apr 16, 2006; A.1;

Housing Costs Too Much? Then Work More, Mayor Says; Conservative Jim Naugle joins developers to fight an affordable-housing law in Fort Lauderdale. He suggests a 40-hour workweek is too little.

Brittany Wallman; Los Angeles Times; May 21, 2006; A.23;

Housing Prices to Drop, Report Says; Projecting a median price decline of 3.6% in 2007, a firm offers one of the starkest forecasts yet of the weakening sector.

Los Angeles Times; Oct 4, 2006; C.3

COLUMN ONE; A loan that’ll get ugly fast; Option mortgages allow payments so low that borrowers go deeper into debt. Their popularity could pose risks for the housing market.

David Streitfeld; Los Angeles Times; Dec 11, 2006; A.1;

The first article talks about delusional folks who mistook luck for skill. These are the folks that made big dough in L.A. and thought they could replicate these same behaviors in Vegas and Arizona. You can take a wild guess as to how these folks are now doing. How appropriate that it was Las Vegas too. Another article talks about the Inland Empire as the “dream” of L.A. which of course is nothing more than an utter nightmare now where prices are down 50 to 60 percent with vacant homes on nearly every block.

You have to love the “starkest” forecast of a 3.6% drop in housing prices. Bwahaha! If that were only the case. By this time I was already blogging away about the massive excess in California and the nation. Housing prices in California are now down 41+% on a statewide basis. And we also get someone calling out Option mortgages which of course are going to kick the California housing market in the groin in 2009 through 2011.

This is the history of an epic housing bubble. An era has now come to an end. This Santa Monica home that sold at the peak for $1,100,000. What is the current price? How about $709,000 with only 1 day on the market. Do you think lenders are quickly getting the idea? This is as prime as you get in terms of L.A. We are now going to see practically every area in the Southland take a hit from this bubble bursting. The fact that credit markets are still in a defensive position will not help the market for many years. Even in the Republic of Santa Monica, comrades still find that rare foreclosure.

Today we salute you Santa Monica with our Real Home of Genius Award.

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