Vendaval Denial

The irony of Vendaval:

(′ven·də′väl):

(meteorology) A stormy southwest wind on the southern Mediterranean coast of Spain and in the Straits of Gibraltar; it occurs with a low advancing from the west in late autumn, winter, or early spring, and is often accompanied by thunderstorms and violent squalls.

Is it too much to ask for the storm to stop and some normalcy to return?

Perhaps it is. Even in 2011.

For now the denial and incessant waiting continues.

24761 Vendaval
Lake Forest, CA 92630
Beds: 4
Bath: 2.75
Sq Ft: 3,249
Lot: 6,000

This beautiful home located in a lovely and rather secluded community with nice green belts and parks in Lake Forest, California was purchased for just shy of one million dollars ($910,000) back on October 24, 2006. It was then bought by an investor at foreclosure auction for $618,500 cash on May 28, 2010.

Following listing in late September 2010, 155 days on the market later this home remains priced at $729,000, which in case the seller forgot is only slightly less the 10 TIMES the median income for this small city. Only the investor knows how much was poured in to this adobe between May and September to make it move-in ready. Laminate wood flooring is nice, but not very expensive. The $110,500 proft being targeted provides us only an inkling.

A local comparable sale on December 3, 2010 went for $730,000 - same style and sized home, similar location - a signal to the seller that $729,000 is a perfectly reasonable asking price too. Will the angry real estate gods of Orange County to shine down with favor once more upon a turbulent sea of Lake Forest home sales signed at prices well below $650,000?

The neighborhood is nice and ideal for a family to live. The schools in the area are quite good. You can check out the schools' API scores here (type in the school name).

OC Realtors Said It Would Never Happen. Yet It's Happening Right Now.

L.A. Times is reporting that Orange County, San Diego County and LA County collectively showing a 17% price decline between January 2007 and January 2008. Only Las Vegas and Miami are worse.

The C.A.R. reported an increase in the rate of home sales in February by 10% over the previous month,but this still constitutes a 29% decline from February 2007 sales.

Denial California-Style

Don't worry, Californians.

California is not in a real estate crisis and doesn't figure to be in one soon.

Mr. Tom Elias of the Daily Breeze (L.A.) asserts that you can hardly go wrong when investing in California real estate. So if you are holding on to that home, or have recently purchased a home in the Golden state at top dollar, you're investment is surely "safe as houses". Indeed, California has experienced it's share of booms in it's history, but rarely are these booms followed by serious busts. Usually the declines are gradual and take many years to reach bottom.

Mr. Elias suggests also that "in-migration" will eventually save California's downward spiral housing market and preserve real estate values. Everyone wants to live here and this feeds the rational exhuberance of California housing demand. Rising tides float all boats. Soon renters earning $75,000 per year will be able to move up the proverbial California housing food chain and afford a home of their own. Though how this phenomanon is theoretically achieved is not precisely explained.

I thought I'd post this article by Mr. Elias to demonstrate the level of denial out there in the state about the California housing market. It is, in a word, quite unbelievable.

Mr. Elias' assertions might hold water if it weren't for some annoying little tidbits of fact facing potential homebuyers in California. The 2006-2007 housing crash, Mr. Elias, is different from previous boom-bust chronologies in California. What we are seeing is home financing for families with median to upper median-level income drying up almost completely. Lending standards are becoming more and more restrictive. While your "in-migration" may very well be increasing slightly each year in California, the incomes of those new residents are unfortunately not increasing proportionately with housing costs in California.

Overbuilt areas and non-overbuilt areas face similar music - that real median incomes in communities like Newport Beach, Long Beach, Irvine, Lake Forest, combined with the California-spend-it-if-you-got-it-lifestyle, simply do not support the magnitude of debt required to leverage a home. Becoming a homedebtor is still possible, but it's not something anyone in there right mind should consider right now. Mr. Elias' article fails to account for the mass emigration of people from the state of California due to housing costs (U.S. Census Bureau and U.S. Department of Finance) being "out of control", among other important reasons.

Even if Mr. Elias' assertion about "in-migration" were true, the notion that this influx of people searching for the good life would contribute to an economic rising tide in the state under which all boats would float, is fantasy. If anything, the result of such a theory would be that demand for rental housing in California would skyrocket to unprecedented proportions in the short run, but homes would remain unaffordable. In the medium to long run, housing values will fall substantially.

An almost perfect storm is brewing in Southern California real estate. Even those that would make the most from selling and financing homes, and who would walk over dead bodies and lie during the entire trek to preserve that earning potential, know this truth.

If you now own a home in Southern California, then you should be using every recourse to sell the living shit out of it. Drop your drawers on price, incentivise like no tommorrow, just get the f*#$ out!

If you are thinking about buying a home right now in Southern California, you should dunk your head in a cold bucket of water and then think again. Now is the worst time ever to purchase a home. Changes in the U.S. economy, the job market, the U.S. dollar, lending standards and price trends are aligning themselves to suggest one thing: Wait.