The foreclosure 'discount': 45% in Glassell Park

I just finished putting together another collection of foreclosure listings for latimes.com, and it includes the house pictured at right. This one really tells a story. Details:

2117 W. Avenue 33, Los Angeles 90065. Built in 1922, three bedrooms, one bath, 978 square feet on a 2,500-square foot lot.

Prior peak sales price: Sold for $510,000 in February 2007.

Current listing price: $279,900.

Discount from peak sales price: 45.1%.

Agent's description: "Bank owned ... House sits high above street level ... Nice quiet Glassell Park street. Raised foundation, hardwood floors."

The Zillow "Zestimate" on this house is $420,000. It's going to sell for a lot less than that. I don't mention that as a knock on Zillow -- I happen to believe their estimates are about as good as computer-driven estimates can get. I mention it to demonstrate that prices are falling so rapidly in this neighborhood that there is no way for Zillow's computers to keep up. The information that this house is worth somewhere around $280,000 is still unknown to Zillow's computers. It is still unknown to DataQuick. It is a shoe waiting to drop on this street, where people -- making the same calculations Zillow's computer makes -- might still believe their homes are still worth in the low $400s, or the high $300s. This is a meltdown happening before our eyes.

Update: Reader Brady Westwater weighs in: "Both you and Zillow missed the point of this sale. This house is on a 2,500-foot lot (which is a substandard-sized lot) -- while all the other comps on are 6,000 - 7,500 foot lots. ...  To say this shows the other houses have also declined to that price, when they are are on lots two and three times the size of this lot, is a clear factual error and should be corrected."

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.

Comments

[tarbubble]

wow. that is a price that will bring some "wait-and-watch" buyers off the sidelines. too bad it is a VERY small house on a VERY small lot.

[Landless]

It is still too much money. Renters do not have the ability to save money because it takes two incomes to pay rent. This is an old, deteriorated house. The price needs to come way, way down.

[Gman]

Yeah! An 85 year old house that requires Sherpa assistance to get to the front door. And all that for about $285 a square foot. Show me more of these. I'll take a dozen.

[E]

It'll be fun to watch the Highland Park meltdown.

:grin:

[JK]

I'm willing to bet that they don't even get $280K for this house. Still trying to imagine a 900s/ft house in Glassel Park going to over half a million dollars just last year! What fool...?

[Chris]

Drop off the Key Lee
And set yourself free

The most beautiful description so far....

I’m at the annual Hyman Minsky Conference at the Levy Institute at Bard College.

Minsky, if you do not know him, was an economist who pointed out that stability is destabilizing. Because stability breeds confidence that it will continue, it encourages people to make ever riskier investments, and to take on ever more leverage.

Minsky argued there were three levels of investment as the cycle progresses. First comes hedging, in which investments are made to reduce risk. Then comes the speculative phase, and finally the Ponzi phase, in which the investment can be justified only by the assumption that prices will keep rising, not by the expected income.

Paul McCulley of Pimco, the big bond manager, gave an interesting speech in which he said the recent subprime mortgage fiasco proceeded to a fourth level — one that he called “Ponzi-squared” — before it collapsed.

At the end, he said, the marginal subprime loan was:

No money down
No documentation of income
Initial below-market teaser interest rate
Negative amortization

That is not a loan, he said. Instead, it amounted to giving the home buyer a call option to buy the house at the current market price, coupled with a put option to sell the house back at that price.

If house prices kept rising, the “buyer” could make the small interest payments to keep the option open, and eventually sell the house. That happened for a time, and led to the conclusion by rating agencies that such borrowers were good risks.

But when prices went down, the “buyer” would suffer no loss if he exercised the put and gave the house to the lender. That is just what happened.

As Paul Simon wrote in 1975, said Mr. McCulley, the strategy became:

Drop off the key, Lee,
And set yourself free.

from here - http://norris.blogs.nytimes.com/

[buz]

And it has a nice view of power/telephone lines. Let me see, 978 sq ft, built in 1922, gang adjacent, LAUSD schools. Yep, its worth about $47K. No more.

[Creative Destruction]

Was the 2007 sale a fraudulent cash-back sale? (i.e.- did the buyer in 2007 actually think the property was worth $510,000?)

The buyer must have defaulted on the mortgage almost immediately if the property is already being listed for sale by the bank (14 months later).

Zillow lists a prior sale of $345,000 in May 2005- most likely the real peak. How much did fradulent straw-man buyer deals push prices higher?

[What]

$285K???? That's way too high in HP.

Who wants to pay $285k to live in Gangland? Idiots, that's who.

[momtotwins]

No way that house sold for $510K a year ago! I live over the hill in Mt. Wash where a house in foreclosure across the street from me sold for $627K at auction, which is a steal and in a much safer, quiet, neighborly neighborhood. I just recently drove through the area where this house was for sale trying to get my twins asleep in the car and in broad daylight across the street from the elementary school this house is near a tagger was tagging a wall. I was scared and got the hell out of there. They will be lucky to get $200K.

[Arti]

Whoever sold this shack in a gang-infested area to a fool for half a million dollars is an absolute genius.

[John]

Is this a "foreclosure" discount or a "Los Avenidas" discount? Gang Abatement Districts (and adjacent neighborhoods) rarely attract top dollar.

On the plus side, it looks like Mama Leon is out of the picture for a little while. http://www.latimes.com/news/local/
la-me-leon16apr16,1,7978071.story

$280k is getting in the neighborhood of reasonable, and if ICE and the LAPD can work together to get the criminals arrested and/or deported while leaving the hardworking folks alone, there might be some deals there pretty soon.

[John]

Peter, I just read your foreclosure article.

One or two of those homes were fairly priced, but there's NO WAY some of those houses are going to sell anywhere near the asking price.

Also, and this may be fodder for another post, but do you know if there's any truth to the rumor that banks are waiting to foreclose on condos where the owner has stopped paying the mortgage to avoid the HOA fees?

This could spell disaster for the condo market PDQ.

[Geek Seek]

re Chris' post:

http://tinyurl.com/2ukere

I read this description of Minsky, which I liked very much: Radical Keynesian

This has been your Minsky Moment. Now back to our regularly scheduled deprogramming.

[HulaGirl]

Previous story posted a few weeks back on Milla Goldenberg, who writes the blog Milla Times, on finding a home in L.A. for $400,000:

"Originally, I looked at Silver Lake but the fixers there were selling in the fives, so I moved my target east to Highland Park, where prices seemed more manageable....

Calling Milla: How do you feel about your purchase now?
Just curious - Please let us know your thoughts..

[gotforeclosure]

"What we don't know at this stage is what the equity in homes will be at any individual price level. Remember, the ultimate collateral that backs up mortgage backed securities, is the equity in (...) homes financed by subprimes. It's that equity which is the key value base for the mortgage backed securities.

"And as I see it, as prices begin to move down we got an increasing squeeze on that collateral, and the result is ever increasing mark-downs.

"The evaluation process (...) one can argue that no matter where the prices go in any realistic sense for homes, we're already there. But (...) I don't think we can know that."
- A.G. in a recent CNBC interview.

The fundamental value of a home in a decent rental area (like Glassel Park) is based on its ROI to an investor buyer based on market rents.

"$45,000" is at least as silly as $510,000. I can't wait to look back at this time ten years from now! Any bets at over $510,000? No? Just look back at 1992!

[dunno]

I'm willing to bet my house that the last $510K price was a fraudulent straw buyer cashback sale.

[Laker]

This shack (in gang infested area) was sold on 01/04/2001: for $129,000.
That is the value (if there is one) of this house.
Now, since there are plenty of fools, I'm sure someone could be found to pay $280,000 for it today... hey with 105 down, it is about $1500 per month payment on 30 year fixed, or $1200 interest only...

However, the nice sale in 2001 is a seal to the actual value in this case. $129,000. And that will be the price of it in about 12-18 months

[Uncle Billy Climbs Mont Pelerin]

"This is a meltdown happening before our eyes."

Let's keep following the money and see who else is profiting from the meltdown. Let's take a close look at Ronald Lauder (yep, Lauder family), and his daughter Jane's husband, Kevin M. Warsh. Mr. Warsh, or rather, Governor Warsh was appointed by President Bush and "took office on February 24, 2006, to fill an unexpired term ending January 31, 2018."

A few eyebrows puckered at the time due to his age; he was 36 at the time. But what about the credentials? The other guys -- Doctors of Economics from MIT, Harvard, etc. Kevin? Lawyer that worked mostly at Morgan Stanley in M&A. He went straight from law school to Morgan Stanley.

Then, as the fast-tracking continued: "Mr. Warsh served as Special Assistant to the President for Economic Policy and as Executive Secretary of the National Economic Council from 2002 until February 2006. His primary areas of responsibility included domestic finance, banking and securities regulatory policy, and consumer protection. He advised the President and senior administration officials on issues related to the U.S. economy, particularly fund flows in the capital markets, securities, banking, and insurance issues. Mr. Warsh participated in the President’s Working Group on Financial Markets and served as the administration’s chief liaison to the independent financial regulatory agencies."

This bears repeating: "served as the administration's chief liaison to the independent financial regulatory agencies."

His Father-in-Law Ronald, who coincidentally is very involved in real estate, seemed to have a very chummy relationship with the president. He even got one of those decorative Ambassadorships (Austria).

So we have an interesting nexus here... Much too young and underqualified Investment Bank guy, related to Billionaire Bush Buddy, becomes chief liaison to the regulatory agencies that have failed us pretty badly. Doesn't look too good.

Talk about happening right before our eyes. Sheesh. Wonder if Mr. Lauder's fortunes have improved greatly with the Bubble or with the Crash, or both.

[puckhead]

That $510K price had to have some fraud involved. I actually had an apartment not far from that house right after college and it was a war zone even way back then. I just can't imagine even at the height of the bubble anyone would pay $510K for that house. There are definately decent areas to live in Highland Park, this is not one of them.

[ajk]

i think the main problem with zillow is not that they don't update - they do; but their program automatically excludes "questionable" data.

for example, if a house sold for 250000 and then for 125000 6 months later they automatically exclude that sale because (in previous times) it may have been an in-family transfer or tax-related price not indicating actual sales.

so all the foreclosure prices are automatically excluded when calculating their 'zestimates" - which basically means their estimates mean absolutely nothing in the current market.

[Cal]

It will be interesting to see what those ultimately sell for.

As for the Zillow comment. I always enjoy realtors who bag on Zillow as being inaccurate.. if you look at how many overpriced listings on the market there are it isn't like the Realtors are getting pricing right. I bet taken in aggregate Zillow is about as accurate as your standard realtor. Which I guess bolsters the case that Zillow is inaccurate but I don't think the realtors quite mean it like that.

They think if they can point out that house A is on Zillow at X and it comps at Y it invalidates Zillows whole model. But they can't take that same logic and turn it around on the listings that they as a group have and how many overpriced ones are on the market.

[Steve Sailer]

I imagine Sam Quinones's recent front page story on Glassell Park neighbor Mama Leon, the illegal immigrant drug dealer with 13 children, has helped bring buyers flocking!

[Winfield J. Abbe]

I bid $895.00 that is Eight Hundred Ninety Five and no/100 dollars for this 3 bedroom piece of junk in LA on a lot so small (about 0.06 acres) it is exceeded in size by most houses elsewhere. Note that one acre is 43,560 square feet. So even one tenth of an acre is 4,356 square feet. And now the greatest spectacle of socialistic fraud on the face of the planet, as Congress forces all the responsible citizens, who have paid their bills and mortgages responsibly for decades, must be forced by the full force and power of the law, to have their taxes, forced from them with threats of jail time, fines and confiscation of their property, be used to bail out the absolutely obscene decisions of lenders and buyers to lend and "pay" these absolutely unconscionable and decadent and totally out of line prices of hundreds of thousands of dollars for this 3 bedroom piece of junk in Los Angeles, likely even on an earthquake fault but with not even any earthquake insurance required. There are not words in the polite English language to describe this horrific situation of unfairness, foolishness, stupidity, by all concerned. But in a "free" society, people are free to be stupid. But then when they are stupid, please don't force the rest of us to bail them out of their stupidity.

[John T Watts]

Now check out what you can get for $279,900 in other parts of the country. California still looks overpriced.