By Dr. Housing Bubble
Every time a housing bubble forms you get the same typical housing cheerleaders talking about massive gentrification. Many areas have gentrified in dramatic fashion but at the end of a housing bubble, you start seeing wild prices in areas where it is questionable if gentrification will or has occurred. In Southern California, the trend has been unrelenting to adding renter households. Some think that raising the minimum wage to $15 is going to inflate housing prices but this is simply nonsense. All this does is eat into more disposable income – that Big Mac will cost more or Taco Tuesday won’t be such a bargain. As if this new push will allow people to buy $700,000 crap shacks. When you read reports on housing from the media you get a deep sense that they’ve never been out to many of the zip codes in L.A. County. Take a look at an area that is very frothy but rarely talked about. Paramount.
Paramount – the city, not the movie company
While the house humpers are fixated on tiny markets, they fail to realize that prices are soaring in virtually every area of Los Angeles. Did schools get better? Did incomes go up dramatically? Does Paramount have hot Chinese money flowing in? The answer is no to each of those questions yet prices are very high for this area.
I’ve noticed a few gentrification pushers trying to push cities like Pacoima, Compton, and Paramount as if this was the bargain to be had in L.A. County.
Take a look at one example here:
13440 Jetmore Ave, Paramount, CA 90723
3 beds, 2 baths listed at 1,045 square feet
This place was built in 1924. Street parking seems a bit tight here:
At least you have a gated driveway. People talk about buying a home and holding on for a long duration because otherwise, you are “flushing” money down the drain renting. The majority of people in L.A. County rent because they can’t afford to buy. With that said, buyers of this home never stayed put and some lost money:
Someone bought this home in 1995 and lost the home to foreclosure in 1996 (this was at a purchase price of $66,500). So much for always making money in housing. The home sold in 1997 for $64,500 and then sold in 1998 for $121,000. Someone made money! The next sale took place in 2001 for $120,000 – $1,000 less than the 1998 price (another losing bet). It then sold for $312,000 in 2005 during the mortgage crack days of the bubble. These folks did well. It then sold in 2006 for $445,000 and these folks found no more chairs when the music stopped. Bust and another loser. The home went into foreclosure and then sold in 2008 for $238,000. Now it is back on the market for $384,948.
Yet the line goes, “everyone that buys real estate makes money.” Hell, all you need to do is look at this one property and figure out that is a lie. You make money buying at the right price. Some bought at peaks, some bought at troughs, but in the end some people made and lost big money. Doesn’t sound like a sure bet to me.
The current price is ridiculous. The adjusted gross income for a family in this neighborhood is $32,000. As history shows, California is the land of real estate booms and busts. But believe the hype and be one of the first to gentrify this area. Take a look at school ratings here:
You’ll be spending nearly $400,000 for this. Yes, this market is a bubble. Reporters need to go out to these areas and see what people are actually buying. But they won’t. And the bubble will pop. And on and on will the story go of the booms and bust of California real estate.