Happy holidays everyone! Hope everyone is enjoying the end of the year festivities. There’s a feeling in the air that everyone is maxed out. I was out in the Inland Empire this past weekend and saw very nice brand new homes going for $200,000. Prices are starting to take major downturns here in California . I’ve been getting a lot more e-mails from readers showing me Real Homes of Genius throughout the state. In fact, I would venture to say that this housing fiasco has enveloped the entire state of California into a Real State of Genius. We featured 10 Southern California homes back in May and people still had doubts about a housing bubble. In today’s very special holiday report, we are going to show 10 homes throughout the state from Palo Alto, to Fresno, to Chula Vista that bring home this housing crisis. This should also show that this housing bubble is more than a subprime problem but a much larger and pervasive credit issue that will impact the entire economy. Listening to the radio this weekend, they had a realtor from Las Vegas pleading his case that the government needs to bring back “alternative financing” to prime the pump. Yes! What a splendid idea. Instead of admitting the glaring problem, let us pump this bubble to the next dimension. This is tantamount to giving a meth addict more meth when they are in the middle of rehab because they cannot bare the withdrawal pains. Oh yes, our society is addicted to credit and even the rhetoric of “injecting” more liquidity should make you think about the psychological ramifications of comparing the Fed to some sort of doctor. Maybe they are comparing their valiant effort to that of Dr. Kevorkian.

If you have any doubts that we are in a bubble here in California , after seeing these 10 homes maybe your opinion will change. We’ll profile homes in posh areas, to not so prime areas to demonstrate that this manic housing bubble infected rich and poor alike. Greed crosses all socio-economic barriers. California is the golden state and land of Hollywood . Perfect weather and tan bodies are everywhere; that is if you are within a 10 mile radius of the coastline. Yet homes that are nowhere near the coast and have bad weather went up in price just like prime properties. It would seem that being in California was justification enough for sky-high prices. Today we salute you California with our Real State of Genius Award.

#10 – San Francisco (Bayview)

Price: $445,000

Square Feet: 932

Details: 2 bedroom / 1 bath

Median Rent for Similar Unit: $1,750

It is hard to believe that there is a place more expensive than Southern California but there is. San Francisco and Marin County boast some of the most overpriced real estate known to humankind. We won’t turn this into a Tupac and Biggie thing, a who is more overpriced, the north or the south since we are both in another universe. After all, trying to distinguish between really crazy and really really crazy is an exercise in futility. As you can see from this enormous 932 square foot home, you’ll get more than you can handle at a stunning price of $445,000. Area rents for a similar place like this one will go for about $1,750 a month. You don’t need to be a rocket scientist to know what makes sense here. Let us move on to another Northern California overpriced area, Palo Alto .

#9 Palo Alto

Price: $799,000

Square Feet: 692

Details: 2 bedroom / 1 bath

Median Rent for Similar Unit: $2,500

Palo Alto is home to Stanford University and anti-university logic housing prices. You would think that people here would refrain from bubblemania instead, they have taken it to another level. We won’t even talk about East Palo Alto but suffice it to say that people were paying for name, like paying for Nike over your Wal-Mart priced shoes. The only difference here is we are talking hundreds of thousands of dollars. If you thought the previous home was small and expensive, here we have a 692 square foot home for $799,000! This home is for those wanting to relive the glory days of living in your dorm except as an adult. The only difference here is you won’t graduate away from your mortgage.

#8 Fresno

Price: $167,000

Square Feet: 1,170

Details: 4 bedroom / 2 baths

Median Rent for Similar Unit: $1,295

Our next city takes us to Fresno California . The birthplace of acclaimed rapper and procreator Kevin Federline, this city is exploding. The central plains of California are taking a major hit with the current housing market. Prices have adjusted and foreclosures are exploding. This home’s price is starting to have a more accurate reflection of local area rents. You would think that landscaping is necessary in the current market but not for these people. Here we have a 3D home since it seems to go on forever to the back. The harder hit areas need to adjust quickly because inventory is piling up like a plate of pancakes from Denny’s and people can’t hold out too long since this is subprime country. For example with San Francisco and Palo Alto, we still have delusional sellers with reserves thinking 2008 will somehow be a different year while folks in these cities have no reserves thus foreclosures are spiking much faster.

#7 Stockton





Price: $109,000

Square Feet: 976

Details: 2 bedroom / 1 bath

Median Rent for Similar Unit: $800

The next city boasts the infamous award of foreclosure capital USA . Stockton California and near areas have been a hub for subprime shenanigans including a young 24 year old poster child of housing greed and speculation. Stockton is being hit particularly hard since a lot of its local economy was based either directly or indirectly to real estate. This home has a fabulous pink with red trim and is a must for any value investor. Heck, for $109,000 you may not find a cheaper priced home in California . Given that a similar unit could be found for $800 a month, I’m not sure if a would-be Donald Trump investor will be buying this hot pink place.

#6 Paramount

Price: $374,900

Square Feet: 840

Details: 2 bedroom / 1 bath

Median Rent for Similar Unit: $1,500

Next we go South to Los Angeles County . The next city is home to the Zamboni and also a ice cold real estate market. In fact, we’ve profiled Paramount before the New York Times did an article on the bubblicious nature of the city. Suffice it to say that Paramount is another subprime city that is being hit very hard by the housing decline. Unlike Stockton or Fresno that are pricing homes according to the current market, we still have folks thinking the years of going down to your local mortgage broker and getting a no-doc exotic banana republic loan will come again. Little by little we are seeing this confidence being chipped away. This 840 square foot foreclosure demonstrates how absurd the bubble has gotten. A similar place would rent for $1,500 while the home is on the market for $374,900. What do you think the price would need to fall to before this home makes economic sense? That’s right, not the current price.

#5 Riverside

Price: $205,000

Square Feet: 1,070

Details: 3 bedroom / 1 bath

Median Rent for Similar Unit: $1,495

Next we move the Inland Empire , ground zero of the housing bubble bust. If you needed to look at a region that epitomizes the housing excess, you needn’t look any further than the Inland Empire of Southern California. Overbuilding, speculation, and fraud are no recipe for building a sustainable region. Simply put, speculators assumed that anything remotely close to L.A. , Orange , and San Diego County would command high prices because people said so. Now that the bubble has burst this region has the highest foreclosures and inventory in the entire Southern California region. This bank owned property was initially listed at $250,000 but had no bites. After 3 months on the market you would think that interest would be high but again, even looking at local area rents could be misleading for a real estate investor since a large part of the local economy was based on housing, construction, and real estate financing. Since California is already in a recession aside from what the numbers tell us, what do you think is going to happen to rents when the employment market contracts?

#4 Santa Ana

Price: $420,000

Square Feet: 680

Details: 2 bedroom / 1 bath

Median Rent for Similar Unit: $1,480

Next we go to the Real OC, Santa Ana . You would think a place with 12.4 percent of Orange County ’s residence would garner more fanfare but all you hear about is Newport Beach and Laguna Hills , which hold a very small part of Orange County ’s 2.8 million inhabitants. Why look at facts and data when we can speculate into infinity!? This short sale is subject to bank approval but what are they going to do with so much inventory in the area? This home sold for $488,000 in March of 2006 which makes no sense given that local area rents for a similar place go for $1,480. Wow, that rental price is similar to the Riverside home except the delusion of being in the OC is keeping many of these places sky high in price. A $68,000 discount? Try a couple more hundred thousand. As you dig deeper you start to realize how incredible this housing bubble is.

#3 Santa Monica

Price: $749,000

Square Feet: 635

Details: 2 bedroom / 1 bath

Median Rent for Similar Unit: $2,500

For those of you not from Southern California, Santa Monica is prime. Great location and one of the best cities in Los Angeles County . That doesn’t mean that we don’t have any Real Homes of Genius in the area. With this magnificent 635 square foot mansion, you will be the envy of all the people flocking to the thirty-mile zone. For this extraordinary privilege you will pay $1,179 per square foot! Bwahaha! Even in the current housing market we still have people thinking housing is going to rebound even when a similar rental would go for $2,500 to $3,000. Who would buy this place? A buy and hold investor will not buy this place. A flipper may buy this place but they would need to knock it down and build on the land. But by the time the new home is ready to flip the market will be even deeper in the dark with less buyers and more inventory.

#2 Chula Vista

Price: $344,500

Square Feet: 1,284

Details: 3 bedroom / 2 baths

Median Rent for Similar Unit: $1,700

Next we head to the Southern part of the state to Chula Vista , which in Spanish means “beautiful view.” Another prime location of bubble speculation and halo effect bubble pricing. That is, since Chula Vista is in San Diego County therefore it should be massively overpriced. Plus, you are paying a premium for an exotic name. This place is the perfect example of buying at a peak in any bubble. This home sold for $460,000 in March and now, only a few short months after is discounted by a stunning $115,500. In other words this home is down 25 percent from it peak in nine months. Yet looking at local area rents it still has further to go. From border to the north, California is one overpriced state. And you wonder how Washington Mutual and Countrywide are going to do next year since they both hold a large percentage of their mortgages in California real estate.

#1 Compton

Price: $290,000

Square Feet: 1,234

Details: 3 bedroom / 1 bath

Median Rent for Similar Unit: $1,500

Finally we come back to Los Angeles County with a property in Compton . Compton which is adjacent to another city on the list, Paramount witnessed the same bubble phenomenon. Prices sky rocketed with a glut of subprime loans. Now, homes are coming back down to Earth in a dramatic fashion. This 1,234 square foot home is going to have a hard time finding a buyer without a resurrection of subprime financing. Now after looking at the data and homes, do you think the pundits have it right that we should open up the financing gates once again? Even areas with poor schools and locations were commanding amazing prices just because they were in California .

Conclusion

The ranking on this list doesn’t signify which area is in a larger bubble because all areas in California are in a bubble. That is a pretty bold statement given the sheer size of the state but without a doubt, California boomed with the credit bubble and will burst in equal proportion to it. There is no stopping a state so dependent and obsessed with housing; now with tighter financing, less demand, booming inventories, and economic malaise the housing correction has only started in the state. In a culture fixated with quick riches and instant gratification, how will we grabble with a housing bust that has the potential of lasting 3, 4, or even 5 years?

Today we salute you California with our Real State of Genius Award.

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