There are renters and home owners. I am currently a renter. Why? Because –

1) Market prices are way over and above the fundamentals
2) It’s cheaper to rent than to buy a home of similar caliber
3) No strings attached

I am a renter and I’m not ashamed to declare it. In the olden days, homeowners were well respected and held in high regard because it meant they were responsible enough to save for a down payment and have a stable income to purchase a home. In a sense, they’ve “made it.” Renters on the other hand were often deemed the lower class of society because they did not, or could not, own their residence. This notion was thrown entirely out of the window during the bubble when anyone and everyone could get a home loan if they so desired.

As a renter I’m often subjected to condescending remarks from homeowners who think they are somehow superior to me simply because I am a renter. Their smirk remarks around the cocktail table about how they’ve built a “mountain of equity” or that smug look on their face as they show off their new Hummer which was bought with a HELOC just makes my blood boil. It’s as if I’m being incredibly stupid for not indulging in their financially unsustainable lifestyle when in fact I’m just being the fiscally responsible person they’re not.

Being a real estate Scrooge the last few years, I understand how some folks might label me as a bitter renter, but I disagree. Sure I’d love to purchase my own home – for the right price. I rent because it makes sense to rent. I simply ran the numbers and decided that the money I was saving from renting versus buying a similar place is better off being invested in something other than real estate. Not only that, I enjoy the piece of mind from not having to worry about how my neighbor’s asking price is undermining my paper equity or how foreclosures on the block will affect the neighborhood. I don’t have to worry about the mortgage rate reset because I would only buy on a fixed rate mortgage. Anything else is too unstable and risky.

There is also a misconceived notion that renters live in sub-optimal conditions. That’s not true. Many renters live in apartments or townhomes because they want to maximize their savings to minimize the mortgage payment when/if they buy a home. With the market as inflated as it was during the boom, you can rent a nice luxury 3000 sqft home for half the price it costs to own. Even now, it’s still cheaper to rent.

Lastly, I do feel bad for a handful of families that will lose their home due to mortgage fraud or scams, but the majority of the at-risk borrowers are just victims of their own greed and ignorance. The market needs to purge these homeowners squatters so they can go back to renting while people who can afford the mortgages move in to stabilize the fields.

I am a renter – hear me roar.

1219 S. 6th Ave

*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%

“BUILD A DREAM HOME on this large lot”
“APPROVED City Architectual Plan to build a Single Family Home of over 8000sq feet
“Great opportunity for a Developer”

Here we have an 86 year old SFR on sale at $717/sqft. It wasn’t quite as high as the $952/sqft we saw last week, but it’s not much better. This is failed flip is being positioned as a great investment opportunity with the already approved city plan to build a mcmansion. If it’s such a great opportunity, why not keep the property and move ahead with it?

Purchase Price $1,230,000
1st Mortgage $984,000
2nd Mortgage $246,000
Downpayment $0

This property was purchased a year ago for $1.23MM at 100% financing and re-listed for sale 10 months later for $1.85MM (a $620k profit just for approved city plans?). Just 6 days after the initial listing, the asking price dropped to $1,392,000 (a $458k reduction). Oops, someone must have forgotten to check the comp listings. How many days before the next price drop?

There does not appear to be any improvements done to the property. I suspect that this property was originally bought to be a standard SGV flip – tear down, rebuild and sell for profit. Unfortunately for the seller, it took longer than anticipated for the city to approve the plans for the monstrous 8000sqft house. Combine that with the market downtown and the investor is left with nothing more than a burnt investment. It’s toast.

Luckily for the seller, they have not yet bulldozed the house. He can still attempt to sell the property as is, but after 75 days it’s still on the market. Do you think the $1,392,000 asking price is a random number? This is probably the amount the seller needs to get out without being burned. I wonder if they’re still making payments on it.

Given the large lot size, I might pay a third of the asking price. But then again, 6th Street is getting awfully close to Monrovia so maybe not. What would you pay for this property in today’s market?

Whether you agree or disagree with the bearish views on this housing blog, you’re here because you’re interested in the state of the housing market. Unlike the stock market or other financial sectors where participation is voluntary, the housing market is not. Everyone needs a place to live – rent or own.

From the early days of civilization to the ever changing world of the 21^st century, humans have sought for a place to call home – a place of their own. While a house provides shelter from the elements and a place to sleep, a home provides a sense of security and belonging. There is no doubt the biggest part of the American Dream is the home itself.

It’s understandable why people desire a piece of that pie, but it seems that our society has forgotten the means by which to attain it. Through its history, America has prided itself as the land of opportunities – if you work for it, you can achieve anything. However, instead of working hard and saving money, we’ve become a nation of debtors. A nation of residents with rampant credit card debts, negative savings and no solid plans for retirement. This would normally be balanced out and corrected with a healthy dose of financial responsibility, but the negligence of the government and the greed of Wall Street kept the kool-aid fountain flowing for years.

Either through uncontrolled consumerism or immense greed, our society has bred the wrongful mentality of rightful home ownership. If you didn’t know any better and all you witnessed was the frenzy of the last few years, you would think that home ownership is a right, not a privilege. Only prudent, financially responsible, law-abiding people should have the privilege to own a home. Sadly, that was not the case during the bubble.

In the last half decade, many people disregarded any sort of market fundamentals and overstretched themselves to buy a piece of the American Dream. Some risked their life savings and others risked nothing more than their credit, but they all wanted it without considering the consequences of their actions. It amazes me that people can’t understand the simple concept of Don’t-Spend-More-Than-You-Make.

Many of these dreamers didn’t just want any home. They wanted their dream home complete with a three car garage, gourmet kitchen, pergo floors, loving wife and 2.4 kids. It’s a lovely thought, but because of their irresponsible actions, it will soon be nothing more than a fleeting thought. Yes, the American Dream is worth pursuing, but doing so through unethical and irresponsible means will turn that dream into a nightmare faster than you can say foreclosure.

Since I am the primary author for this blog, I owe it to my readers to disclose (at least in part) my background. First and foremost, privacy is paramount. I will share the following facts about me, but fully intend to remain anonymous mainly for self-preservation and safety concerns.

I have lived in Arcadia and its surrounding cities since 1990 and know the area like the back of my hand. Currently a renter in one of the neighboring cities, I hope to buy in Arcadia when the price and time is right. I carry no credit card debt, save over 50% of my net income every month, have one small consolidated student loan at a low interest rate and a 800+ FICO score. I am female and taken.

As a young, mechanical engineer, I currently work for a Fortune 500 company as a product development engineer in the medical device industry. While my line of work has nothing to do with the financial and/or housing markets, I am intrigued by its trends and movements enough to follow its past, present and future events. Over the past few years I’ve grown increasingly frustrated with the socal housing craze. I’ve chosen to rent, save and invest my savings instead of take part in the bubble because prices were significantly over-valued. I’d be damned if I were to pay over $1million for a 1300 sqft fixer-upper near Monrovia.

Despite my bearish views, I am looking to buy in the future. For the most part, I will be a rent-saver buyer when the time is right, but I will also be looking for killer deals. With the way things are going, I am expecting at least several more years of decline.

Evidently, this is going to be a housing bear’s blog for the foreseeable future, but as with all cycles, that will change as the market turns. My goal is to get information out to as many readers as possible about the state of the housing market so that people can make their own informed choices about buying, selling and/or renting. I have no incentive to promote or condemn any particular view or property as I am completely outside of the RE industry. It hurts me to see people’s lives left in ruins from bad financial decisions and it is my intention to save as many as possible.

SavedByGrace – a roaring housing mama bear.

There are facts and there are myths.
There are truths and there are lies.
There are bears and there are bulls.

There are some lies that select members of the financial and real estate industry would love for you to accept as fact. Real estate agents, brokers, lenders, appraisers, contractors, bankers and anyone else who profits from a transaction has a motive to spew lies to the public for their own personal gain. Whether or not they take action to spread those lies is what distinguishes those with ethics from those without.

What’s obvious to fiscally responsible, clear-headed people may not be as apparent to the millions and millions of sheeple who blindly accept the lies told by the National Association of Realtors. The NAR is certainly not the only party with incentives to lie, but they are by far the biggest in number since everyone and their brother seems to have a real estate license these days. I will proceed to pick apart 10 popular RE myths.

Myth # 1 – Real Estate Always Go Up!

While the price of a property may go up over time, its value does not. The price increase correlates with the increase in income and inflation over time. A $85,000 house in 1974 could be worth over $300,000 now, but people also have a higher income than they did 33 years ago. If you take into account maintenance costs and the wear and tear of the property, its value has actually decreased over time because it’s a much older house.

Myth # 2 – What About the Tax Advantage?

You wouldn’t buy an item simply because it’s on sale (well, some people do). Buying a house just for the tax advantage is like buying a Gucci handbag because it’s 30% off. It’s 30% off of what price though? The tax break for the mortgage interest paid is on taxable income. The borrower must have interest expenses greater than the standard tax deduction before he/she can benefit from the tax break. The tax break is nice, but barely offsets the extra costs of homeownership like insurance, maintenance and property taxes.

Myth # 3 – There Isn’t Any More Land

This statement in and of itself is actually true – we’ve explored all corners of the world. However, it’s misleading to use this as an argument to justify home purchases. People live in housing which lies on land. Housing can be a rented apartment, a townhome, a condo, a single family home or a mansion. Just because everyone wants to live in a McMansion doesn’t mean they should or could do that. Last I checked the United States has a lot more land than Hong Kong, Japan or most European cities. No one is going to become homeless due to the lack of land. That’s just absurd.

Myth # 4 – If You Don’t Buy Now, You’ll Be Priced Out Forever!

You have got to be kidding me. Isn’t this what they said during the last bubble, and the bubble before that and the bubble before that bubble? The double-digit growth outside of market fundamentals is simply unsustainable. Just like the previous two US housing bubbles, we’re in for years – not months – of price and volume decline. We’ve already seen volume drop off a cliff and guess what, price is right behind it.

Myth # 5 – You’re Wasting Money When You Rent

It makes sense to buy only when it costs about the same or less than it does to rent a similar place. During the past few years, it costs thousands more per month to “own” than to rent. The money saved from renting is better off invested in a higher yield market. Real estate agents tell you that by renting, you don’t get to build any equity. While that may be true, renters can make a risk-free return on their money with CDs and other savings accounts. Homeowners on the other hand wake up in the middle of the night worrying what the 15% price reduction on their neighbor’s house will do to their so called equity.

Myth # 6 – Real Estate Is a Great Investment

Contrary to popular belief, real estate is a poor investment. Real estate only averages 3%-4% annual return excluding inflation. Factoring in inflation, there’s almost no gain (+0.7% per Shiller study) in home ownership over the long run other than the shelter and warm and fuzzy feelings it provides. Things change when there’s a bubble, but bubbles are by definition unstable. CDs are running at 3.65%, the stock market at 8% over the long haul and 10%+ for slightly riskier index funds. On top of that, cash, stocks and funds are highly liquid. Real estate is the exact opposite – if you can’t find a buyer, you are stuck holding the bag.

Myth # 7 – Everyone Wants To Live In California

Ah yes, the omnipresent sunshine tax of California. Sure the weather is nice, but standard of living is horrendously high. Compared to other states, you don’t get much for your money when it comes to housing. Maybe that’s why our great golden state has experienced a net outflow of people over the recent years. There are more young and middle aged families moving out of California than moving in – citing affordability as the main reason. Besides, if California is so special, then prices should never drop right? It dropped for 7 consecutive years in the early 90s before prices hit bottom.

Myth # 8 – Many Rich Asians Can/Will Buy with Cash in Arcadia

Although Arcadia has a high population of Asians, that doesn’t mean they’re all wealthy. Even if they are, they surely didn’t get wealthy by being dumb. As crazy as this sounds, they know something about money too! Why would they buy when they can rent for much cheaper? Even if they have enough dough to buy in cash, why wouldn’t they just put down enough to get a good interest rate and borrow the balance while investing the difference in a higher yield, low risk market? Just load up Redfin and take a look at the map. There are many, many homes for sale in 91006/91007. Asians are notorious for their bargaining skills and I’d imagine they’ll use those skills when purchasing a home.

Myth # 9 – Rent Will Increase Over Time

Yes, but again, rent is directly correlated to income and demand. Rents can’t skyrocket just because the landlord feels like making an extra buck if there’s no market for it. The renters can only afford to pay so much based on their disposable income. If income in the area does not increase dramatically, rent cannot and will not move much. Moreover, if demand is a reason then it actually builds the case not to buy because if so many people are buying homes, then demand for rentals is small because so many people are home owners.

Myth # 10 – Many People are on the Sidelines Waiting to Buy

With the record high rate of home ownership posted by the Bush administration, it’s clear many people bought during the boom. These people are no longer potential buyers so the buyer pool has shrunk. All the debtors who have or will default are also out of the buyer pool for the next 7 years due to bad credit. There are only so many people left on the sidelines. On top of that, these sideline buyers will have to go through much stricter lending standards since the credit market is much more risk adversed now – as they should be. That means they’ll need to have 20% downpayment, good credit, assets, relatively low DTI ratios and documented income. There aren’t too many people with those qualifications on the sidelines.

I’m not saying never buy a house. There are good reasons to buy a house, but none of the above qualify as a good reason. Instead, they’re all lies told by the industry insiders to boost their earnings.

So…

There are facts and there are myths.
There are bears and there are bulls.
Can you see why they call it bullsh*t?

Welcome! This is an informative web-log chronicling the real estate market in and around the city of Arcadia, California. Along with other cities in sunny southern California, Arcadia has enjoyed a significant increase in its average home price since the start of the real estate boom back in 2001. This site intends to observe, document and track the turning real estate market in this area.

There will be a variety of post consisting of market analysis, property reports, community profiles, and other pertinent housing-related topics. The intention is to share information with readers and serve as a channel for dialogue amongst interested folks. Whether you’re a home owner, renter, real estate agent, contractor, mortgage broker, investor or just a curious individual, I invite you to join us here at Arcadia Housing Blog.

:: SavedByGrace