This "California Dreaming", foreclosed home, was purchased for $750,000 in December 2004 with what appears to have been only $25,000 down. You may find it in San Francisco at 126 Chester Avenue where the bank had to take it back in November of 2008, white picket fence and all. Back on the market and asking $447,000 in 2009. With a sale for $360,000 in March of 1999, a sale at asking would represent average annual appreciation (CAGR) of 2.1% over the past ten years, but a 40% drop in value over the past five.
The accountant in me looks at these two homes and says only a fool would pay $750,000 for these properties. And only another fool would loan $700,000 on a 40 to 60 year old home that would be lucky to sell for $125,000 in the Detroit Michigan area. Why not just tear the property down and build a new home, fools?
I bought a new SAAB Turbo CD sedan in 1992. Fantastick car. I kept my baby for 17 years, putting a new engine in it in 2001. I spend thousands over the years to maintain it in excellent running condition. Yet, at the end of the day it was still 17 years old. No auto dealer was willing to give more than a $1,000 trade in value for a Car who's replacement value would be $41,000 today. So, why is it buyers and bankers think a 60 year old home in a declining area should keep rising in value forever?
By my standards these old homes are still over-valued, given their 50-60 year old economic life. Putting expensive fixtures and remodeling into one of these old timers, doesn't change the 60 year old wiring and structure or location.
This "California Day Dreaming" foreclosed home was Purchased for $720,000 in September 2005, the bidding for 399 Leland Avenue in San Francisco opened at $306,000 and generated one bid. It sold for $306,000.01 which represents a 57% haircut from its previous sale price, but also average annual appreciation of 2.4% since its sale for $240,000 in 1999 for this single-family. Again to complete the 2005 $720,000 purchase it took two fools. A buyer and a banker, both fools, for paying such an outrageous price.Details for both homes and other area "deals".
Financial Charts and Graphs are often cold and lifeless. But a picture, as they say, is worth a thousand words.
Twenty five years ago during the 80's great American real-estate bust I drove down to the San Francisco Bay Area to bid on some Lake Tahoe time share properties. I had skied Lake Tahoe and fell in love with the area. So, after staying at a new resort that had been built on the side of a mountain I attended sales presentations. The offer sounded reasonable but hearing of some owner foreclosed property auctions in the Bay Area I decided to check it out while on vacation. I easily purchased a unit at the Tahoe resort for 60 cents on the dollar. I never thought the price was a steal, I thought it was a reasonable. Still own it, plus a few more. For business I had the good fortune of attending conferences in San Francisco Bay and LA areas during the 80's and 90's. Absolutely loved that area too.
So, I became familiar with California real-estate prices. But it wasn't until 2005 when I watch a news report on the CA real-estate boom, that I realized just how big the tulip blub mania had gotten. If you show me a new suburban CA home for $1.8 million I have no idea if that is or is not reasonable. I'd need an area real-estate advisor to know. And new commercial real-estate is another story. Even after a bust you still have a new building not a 100 year old home restoration money pit. But when I saw 1,100 sq. ft. two bed room, one bath room homes built just after WWII, which sold for maybe $25,000, now being sold for $750,000 in 2005, I knew the buying frenzy had reached the point of madness.
The finance guy inside me could understand the Wall Street financial engineering and the Treasuries low interest rate policy funding the speculation. But Wall Street and Greenspan was not mandating you had to buy a pig for the price of a triple-crown stallion horse price.
The accounting guy in me still cannot figure out why people want to take an old home built in the 1920's to 1940's for $10,000 to $25,000 and refurbish them with fixtures made for a million dollar home. Sure fixer-upper homes requiring limited expendentures make great values. But when you feel the need to put $150,000 into something that looks worth $100,000...stop. It's time to tear down the old and build new!
Why weren't more bankers and appraisers screaming this is economic madness?
Below is a $550,000 4 Bedroom 3.5 Bath 3,780 sq. ft. home in a more reasonable priced mid-western town. Listing
See New Home Sales Hit Historic Bottom In First QTR. 2009.
Below is an old refurbished Detroit Mansion for $149,000
NEW LOWER PRICE. Exquisite Boston Edison home. Beautifully maintained and featuring 3natural fireplaces, gleaming hardwood floors, and very large room sizes. Elegant foyer with graceful stairway leading up featuring stained glass stairwindow. Potential for 5th (12 x 18) bedroom attached to 4th. Completely finished 3rd floor with separate forced air heating and new windows. Newer Boiler. Pre-appl req'd. Alarm. Short Sale. "California Dreaming" This my friends is the real deal.
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