Volk You, Buddy!

Address: 3057 Volk Ave, 90808
Asking Price: $649,000
Year Built: 1954
Size: 3 beds, 3 baths, 1,900 sq. ft.
$/Sq. Ft.: $342
Purchase price: N/A
Purchase date: N/A
MLS#: P654927
On Redfin: 21 days
Down Payment: $129,800
Monthly Payment: $4,000
Income Requirement: $162,000
Description: This home is a great opportunity for the Rancho buyer who desires the clean modern architecture of Cliff May combined with extra living space and storage areas. Set on one of the largest lots in the tract - 6200 sqft - this home features 1527 sqft in the main house and a permitted casita of approximately 400 sqft. Upgrades to the home are numerous: separate indoor laundry room, 240 amp electrical service, air conditionaing in both the main house and casita, separate water heaters for the master bath and casita, and an intercom system. Located on one the nicest streets in the tract, this property is a short walk to the lakes, paths, wildlife and nature center of 800 acre El Dorado Park. This home is by far the best value in the Ranchos.

“Conditionaing”?

I’ve never featured this area of Long Beach before, but today I decided it is worth exploring. This development, what many call “Rancho,” is bordered by Lakewood and Hawaiian Gardens, adjacent to El Dorado park, and is by all outward appearances a nice, clean, middle class community. The median household income is around $74,675, which is about 20 grand higher per year than the rest of the state.

The reason I decided to focus on this area, which couldn’t be further from where I want to buy (but I can certainly see the appeal for families), is because there are some interesting things happening here. And by “interesting” I mean “delusional idiots who foolishly price like it’s the summer of 2005.” You know, interesting.

Before we get too far into this listing, let’s reiterate some pertinent information from the description: This is a 1527 square foot, 2 bedroom 2 bath house we’re talking about here. Yes, there is a diminutive 400 square foot studio (“Is this a casita for Ants?!) in the back yard--which I doubt is fit for adult habitation--but it’s a bit disingenuous to list this as a “1,900 square foot 3 bed/3 bath.”

And don’t try to tell me that casita is the equivalent of a back-house and could be a source of rental income. At 400 squares? NINJA loan, please.

So, back to the main house. It’s obviously unoccupied, which draws attention to the weird staging. The furniture is sparse, small, and doesn’t even fill up the rooms. I mean, they are asking a wallet-nuking $650k for this place and they couldn’t even provide proper staging?

Speaking of $650,000, please take a gander at the kitchen and tell me it’s what you pictured in a house asking almost TWICE the median Southern California home price.



Look at those cheap, nasty fluorescent lights! Yuck! You just know there are countless dead bugs decomposing on the other side of those yellowing, dated plastic covers. And nice Home Depot bargain bin cabinets with NO HARDWARE. Not very “Modern/Hi-Tech” as your listing information so boldly lies—ERRR, claims.

And I can’t quite tell from the photos but some of those appliances look very outdated. Add to that the old countertops, and the (fantasy) buyer has a major renovation on their hands from day one. I mean, I thought realtors coined the phrase, “Kitchens sell houses!"

You know what else sells houses? Bathrooms. Out of three bathrooms to choose from, you know how many pictures were provided?

Whoever guessed ZERO, come on down and claim your prize!



Anytime bathroom or kitchen photos have been withheld, it’s a reliable bet that there’s a very specific reason. In other words, they are likely scary and decrepit. So, instead of bathrooms, we get what the realtor obviously believes are the “best,” most representative pictures to snag a buyer. To wit:



And here it is again.



And again?



Really? The lawnless backyard is the best aspect of the house? So good in fact that you had to show three different angles of the same thing?

This pricing makes no sense. It is simultaneously the most expensive AND the least upgraded house in the neighborhood. This is going to sound crazy, so bear with me, but I think this person might be, well, greedy.

I know! I know! That sounds so nuts! I mean, everybody knows greed plays no part in real estate. Maybe there's oil buried beneath the house?

Cliff May designs may be popular (get it?), but it doesn't take Nostradamus to predict this place will NEVER sell for $650,000. Who knows, maybe ol' Cliff pulled a John Delorean and stowed kilos of coke in the walls of each house he designed. That's about the only way to justify this Delusual asking price.

Judging by the lack of available records, I have a feeling most Rancho sellers are empty nesters trying to extract as much as they can before they retire, but waited too long to pick up a newspaper. They will pay dearly for their unfortunate timing and will get stomped by market fundamentals the longer they fight the new realities.

It’s a good thing the (first of many) stimulus package temporarily increased the conforming loan limit, because assuming you could come up with a 20% down payment of $129,800, you would still be way over the $417,000 limit and would need a jumbo loan. In case you haven’t heard, Wells Fargo just hit the panic button on jumbo loans and is now pricing in risk to the tune of 9%!

Which begs the following questions:

1) How quickly do you think other banks are going to follow suit?
2) How many pairs of trousers will be soiled when sellers of luxury houses get wind of this and desperately chop prices to meet the conforming limits?
3) When luxury houses are priced to get under conforming limits, what do you think that’s going to do to the prices of decidedly non-luxury average abodes like this one?

Rising interest rates are going to absolutely CRUSH prices. Not to mention rising unemployment (people without incomes don’t buy houses) and continued foreclosure activity from the $300 Billion in Option ARM loans coming down the pike.

Although I certainly don't think we're entering the second Great Depression, housing is going to be in serious trouble for years and years. With Fannie and Freddie being pretty much the only remaining mortgage writers, buyers have to meet their rigid income requirements.

Unlike when there were all sorts of wacky sleight-of-hand loans that practically eliminated any affordability hurdles, this New World Lending Order will ultimately determine how much houses cost. It's not what you can afford to pay, it's what somebody is willing to loan you.

This rare subset of eligible buyers, assuming they made $100,000 annually ($25k more than the median income for this zip code!), would still be priced out of an average house like this. In fact, to afford this mediocre pad (which admittedly does have a lot of potential) F&F would require them to magically come up with another $60,000 per year in income before they would qualify for a loan.

To put it another way, if our new buyers made $100,000, the most they could afford to pay for a house is $400,000--and even that's stretching it by assuming no other debt load. $400k is the magic number where debt-to-income meets strict lending requirements. This house asking $650,000 suddenly starts lopping off $100,000 at a time to find an eligible buyer.

Does that help to explain why house prices are going to continue to be systematically dismantled during the ensuing years?

Side Note: This is really strange. I asked my mom about Rancho because the home I lived in for the first year of my life was somewhere in that area. My folks bought a Cliff May model in 1975 for a whopping $75k. She says it was and is a nice area with very small homes.

She couldn't believe some of the asking prices--especially considering this is a tract for working families, not Rockefellers. Just browse the nearby listings. Completely original, run-down shit shacks are commanding more than half a million. It appears as if this whole neighborhood is a few fries short of a Happy Meal.

Anyhow, this is where it gets weird: Our place was on the same street and literally seven houses down from today's featured property! Crazy, right?

Judging by the nearby comps, if my folks had held onto their little bungalow until today it would have appreciated nearly $500,000!