Sunday, September 9th, 2007
Consider some of the frequent travelers on MBC:
- 758 14th – paid $1.695m in July '06; listed now at $1.75m; loss with 6% cost of sale = $50k.
- 512 John – paid $4.075m in Feb. '07; listed now at $3.99m; loss with 6% cost of sale = $316k.
- 2812 Elm – paid $1.584m in June '05; listed now at $1.649m; loss with 6% cost of sale = $35k.
- 601 Larsson – paid $2.0m in Sept. '05; listed now at $1.999m; loss with 6% cost of sale = $121k (this is a short sale; the lender gets hit).
- 714 MBB – paid $1.355m in April '06; listed now at $1.199m; loss with 6% cost of sale = $228k.
- 3009 Highland/"232 30th Pl." – paid $1.225m in July '05; listed at $1.329m; gain with 6% cost of sale = $24k; but isn't that "profit" at risk given long DOM?
- 3200 Elm could make the list; sellers paid right around $1.9m in March 2005; sought about the same at $1.949m this Summer and quickly went into escrow; will need the original purchase price to run the numbers when this escrow closes.
First, the purchases were (perhaps obviously) all quite recent, within 2 years. Maybe all that really tells us is that the crazy runup is over. (Not news.)
Second, none of these have sold yet. They could have further to drop.
Third, though we'll re-check this, we don't yet see a net-loss sale in MB west of Sepulveda in the Spring and Summer 0f 2007. Several sellers are angling to be the first, but we haven't seen a net-loss scenario play out yet.
UPDATE: Some math was fixed and one home added to the list since the original post.
Saturday, September 8th, 2007
Granted, this home has been on the market nearly a year. (It first went up on offer on 9/13/06). You could argue that a re-list was in order. Something to freshen it up, give it another chance.
For 350+ days, the sellers and agent had resisted the temptation to re-list. (MBC specifically congratulated them nearer to day 300. With the same agent still repping the listing, we withdraw the praise.)
Actually, for much of that time, the sellers also resisted the temptation to cut the price (from the start of $1.769m). That attitude started to change this Summer, and it was nipped down to $1.649m just last week.
The owners paid $1.584m in June 2005. At 5% cost of sale, their current list price guarantees them a loss of $17k. Obviously the loss gets worse with a lower sale price. That's pretty remarkable for a nice home in a decent, even B+, location.
There are few comparable sales near this square footage over the past few months. Examples:
- 3312 Maple, 3br/2ba, 2250 sq. ft. – got $1.45m in May
- 2804 Pacific, 3br/3ba, 2050 sq. ft. – got $1.42m in August
- 1140 Laurel, 3br/3ba, 2550 sq. ft. – got $1.535m in August
Lest MBC be accused of singling out one offender, it's worth noting that the following pulled bogus re-lists in the last few days:
- 811 Boundary Pl., 79 DOM, re-listed 9/5/07;
- 4104 Highland, 70 DOM, re-listed 9/5/07;
- 570 27th, 176 DOM, re-listed 9/4/07; and, the capper
- 844 11th, 497 DOM, re-listed 9/4/07
Friday, September 7th, 2007
Are they in escrow now, less than 3 weeks after hitting the MLS? Yes, they are.
Are we surprised? Yes.
Are we happy for the flippers who rebuilt this house, though they made some questionable decisions? Yes.
How many SFRs sold in the Sand Section in August? Three (3).
And in September, so far? Zero.
Do we concur with this comment on the previous story, in light of the reported new escrow?
Lease-options like this one could well become more common, particularly if they are internally financed..Yes, even though we don't know yet whether this sale was on the tricky terms offered by the sellers or through more conventional financing.
Will MBC use the self-Q-&-A format in a lot of future stories?
Thursday, September 6th, 2007
Since May, we've seen 4 new homes close over $3m in the Trees:
- 925 27th (5br/6ba, 4150 sq. ft.) – $3.0m (-$250k/-8%)
- 2802 Pine (5br/4ba, 4600 sq. ft.) – $3.1m (never listed on MLS)
- 927 27th (5br/6ba, 4400 sq. ft.) – $3.15m (-$135/-4%)
- 712 31st (5br/4ba, 3800 sq. ft.) – $3.325m (-$74k/-2%)
Nine more homes have been listed since March at $3m+, 6 of them new construction.
Now one of the ceiling-pushers has made a big cut.
At 570 27th, a new Schaar home across from Ladera School, the price began at $3.899m on March 14. It has lingered most of the time since (175 DOM) at $3.75m. Now, along with a bogus re-list, the new price is $3.299m, or $600k lower than the start.
Suddenly, instead of being the most expensive new construction on the market, 27th is cheaper than three new ones and aligned closely with another at $3.295m.
That may give this listing a chance. Another thing that would help would be some new photos. (Click here to view them; and for more on the listing.) We have rarely seen such a poor set for such a pricey new listing. But then, the real issue is getting people to the front door, a completely different art.
Thursday, September 6th, 2007
Let's not get too giddy: The offer is good only on some newly constructed townhomes in south-easternmost Torrance.
You gotta love the sales pitch, courtesy of the RE advertising supplement to Sunday's Daily Breeze:
It's true! BC Urban Development will guarantee that you cannot lose on your new home purchase by offering the first ever 100% guaranteed buy-back program in the history of LA.Oh, yes, the BS alarms are ringing, and we imagine there is a lot in the fine print that a buyer will want to check out. But isn't the whole notion fascinating?
It's simple. If for any reason you decide you do not want your home, give the developer notice 3 1/2 years after your closing date and he will buy it back from you for the exact same price you paid. No closing costs to you whatsoever and no hidden gimmicks. Simply return the home in good condition (normal wear and tear is Ok), and get your original down payment and closing costs back and walk away.
Consider the advantages to the seller:
- Log a purchase and clear inventory in CY 2007;
- Lock in 2007 prices;
- Most buyers won't exercise the option;
- Some of those who do try to sell back can be refused on technical grounds;
- Eventually (5 yrs, 15 yrs, whatever), the unit can be sold at 2007 prices again;
- The builder may never have to take a loss; certainly the whole development is more likely to be profitable in the short term if this tactic gins up sales.
This builder seems to be startlingly realistic about the current zeitgeist among buyers. He's got a bunch of new homes to sell and he knows what is stopping buyers from moving.
He's also taking the long view, which, among MB builders, isn't very common or, generally, even possible.
So, any chance we'll see "buy-back guarantees" some day on new construction in the Trees?
Wednesday, September 5th, 2007
He got the $1.689m he sought, with a reported 1 DOM, using Catalist, no less. (The discounters!?!) He's reportedly moving on (with "Top Model" wifey) to "a larger home with ocean views ... elsewhere in the South Bay."
A few years back, Mr. Knight (okay, Peter) lived in the Tree Section, but he unloaded 737 36th for $1.15m to make the move down to the beach. The folks who took it off his hands sold it again in March 2005 for $1.23m.
About 18 months later, the folks who bought 36th tested the market. In Fall 2006, they asked $1.795m (+$565k) for their hot property. There was no mention of remodeling, so we have to assume the home remains more or less as Peter delivered it.
No takers. The owners took a break.
They began trying again this Spring, on May 17, at $1.785m. Today, after 110 DOM on the newer listing, they're down to $1.645m. That's still a big markup (+$415k/+34%), but they're starting to look less crazy. Slightly.
The nearest competitor is 2622 Pacific at $1.599m, similar size but with issues on both location and curb. 36th is kind of nice on those scores, if you like the Southwestern/adobe look. Alas, Pacific is $180k over a nearby comp sale, and therefore hardly a good barometer.
Who knows the motivations over at 36th these days. But maybe they could learn a thing or two from Peter Brady, who seems to get things done.
UPDATE: Sale date information was corrected.
Tuesday, September 4th, 2007
The second half of August was quiet. Just 6 SFRs west of Sepulveda went into escrow (and stayed). Hard to believe: That’s better than the first half of August, by one.
For perspective, in each previous 2-week period since Spring, we’ve seen an average of 10 sales (new escrows), meaning about 20 per month. With 11 total in August, we’re running at half the pace of previous months this year.
Clearly a big headline: Despite voluminous inventory in the Tree Section above $2m, not a single home in that segment sold in August. There were 24-28 homes on public offer (MLS), depending on the day, and not one was taken. Consider the fact that there was recently a 25-day sales drought before the current one, and that a few new-construction homes are now up for rent. It’s hard to say anything but that this is a market segment in trouble.
There were 10 active SFRs as of Aug. 31.
Going: There were 2 sales (new escrows) since the last report, including one barely-completed bit of new construction at 1008 11th ($2.9m) that went immediately after posting to the MLS. The other sale was 637 6th, a gorgeous, newer, ocean-view corner-lot home – quintessential Hill Section ($3.899m).
Off of the MLS, there was one more big sale – 863 6th, a newer (2002) 4br, 6ba home with over 5,400 sq. ft., is said to have gone for $8.325m. Sellers paid $4.5m in April 2005, $3.8m less, so that’s 85% appreciation in 28 months. Wow.
Coming: New to the publicly listed crop is what seems likely to be a lot sale: 1012 Pacific is an unusually huge 12,000 sq. ft. lot; it can be yours for $3.8m. Also, returning since last report is 911 Duncan, which had gone on hold at while. Finally, we note that 811 Boundary is advertised this week in the Beach Reporter as a “new listing” with a big headline, but don’t believe it – this one was at 72 DOM as of Aug. 31.
Cutting: There was just one price reduction in the Hill Section in the latter half of August, but it was a big one. 512 John started in February at $4.45m, dropped a bit and shot up to $4.75m, but now it’s down $750k from there, at $100.00 short of $4m, priced $75k below what the sellers paid in February 2007.
Dropping out: The biggest news is the end (?) of 844 11th as an active listing. This was an ultra-modern remodel that logged very nearly 500 days on market, cut its list price by almost $500k, and still couldn’t find a taker at $2.7m. Don’t know if it’s been rented or the seller is just taking a break.
Also, we’re dropping 869 3rd from the update. It’s still for sale, but it was here and gone quickly from the MLS. We’ve noted before that 2 realtors bought it 3 years ago for $2.44m and were asking $4m. Does anyone else find it strange that realtors don’t want to use the MLS to sell their own house?
There are 22 active SFRs.
Adios: Two homes sold since the last report: 225 Moonstone, a smaller El Porto remodel at $1.295m went into escrow, and brand-new construction (almost complete) at 217 9th St. actually closed quite suddenly on the 31st after a rocky, on-and-off escrow that had us guessing it was back on the market to stay a while.
The listing language for 9th insisted that the “seller will not take less than asking price.” Lo, the seller did not take less. They got $3.35m, and that includes the $100k extra they tacked on in mid-July as completion neared. OK, great.
Bienvenidos: There are 6 new listings in the Sand Section, one at $1.5m (217 Sea View) and 5 over $2.5m. One of those, way over $2.5m, is 1212 The Strand, listed at $10.9m and rumored to be in escrow already at $10.7m.
Of the rest, the owners of 420 30th are looking to double their money – they paid $1.3m in April ’03, and now seek $2.58m for their 4br charmer on the plateau above Sand Dune Park. And the owners of 220 16th would go one better – they’re like to triple their money, seeking $2.99m now for their 25-year-old “contemporary” style walkstreeter, after paying a hair less than $1m about 100 years ago – no, no, it was 1996.
There’s also new construction at 228 29th Pl. ($3.049m) and a 2-yr.-old home on a lower walkstreet (great location), seeking $5m (224 31st); we don’t have purchase price info on that yet to draw a two-year comparison.
Corte, corte: We saw 6 price cuts (shown in bold on the spreadsheets), including another $100k off of the new one at 209 42nd (new, but 330 DOM), now down $401k since its pre-completion listing.
Saliendo: 209 19th, a nice remodel that had been around a little while (70+ DOM), last asking $3.85m, canceled.
Danos precios!: Our spreadsheets show 5 new closed sale prices from this period, including 209 41st (what’s with all the 209s?) closing at $1.69m (-$109k/-6%), and 225 1st at $1.900m (-$95k/-5%). The other three got more than their start prices – 513 21st, a teardown at $1.375m; 316 Highland, a beauty at $2.175m; and the aforementioned 217 9th.
There are 42 active SFRs, 14 under $2m and 28 above $2m.
Going: Two homes went into escrow in these 2 weeks: one of the newest listings, and least expensive (3504 Maple at $1.299m), and one of the least costly of the newer-vintage resale homes available (3200 Elm at $1.949m, built 2004).
We’re also aware of one under-the-radar (off MLS) sale of lovely new construction at 2603 Laurel, $3.75m. Oh, the joys of skipping the open market.
Quiet, too quiet: Notwithstanding 2603 Laurel, here we track active MLS listings, and none of those in the $2m+ market segment in the Trees has sold since July 31. (Last escrow was 2104 Palm at $3.3m.) That’s right, as we said above, the entire month of August came and went, with 24-28 homes listed in this segment, and not a single one sold.
Chops: There were 8 price cuts in the Trees, including $201k off the priciest of the group, 1718 Pacific (now $4.3m), and several cuts on new construction:
- a second $100k cut at 2807 Elm (now $2.699m, still pushing it),
- the second cut this month on 648 35th (now $2.345m, down $105k), and
- $100k off 2105 Oak (now $2.199m), which is also for rent ($8,500/mo.).
Final sales: Our spreadsheets have info on 7 closed sales in this period, many of which were discussed on MBC earlier.
To wit, 2804 Pacific helped redefine prices nearby by taking $1.42m for a 3br/3ba, 2050 sq.-footer; 1140 Laurel became the first of the 3 listings in the Arbolado Court area to sell ($1.535m, -$104k/-6%); and 2305 Pine got $75k more than they opened up at in February, closing at $1.57m after raising their price to $1.595m and lingering a bit.
In the upper bracket, 579 29th finally figured out a price that works ($2.25m, -$325k/-13%), while new construction at the dead-end of Walnut, er, at 927 27th, took $3.15m (-$135k/-4%).
Monday, September 3rd, 2007
- Total inventory seems to be up a net +10 for the month (SFRs west of Sepulveda).
- It has been 34 days since a sale was made (from MLS-listed properties) in the Tree Section's $2m+ segment.
Throughout the week we'll be posting other analyses of the data for the month and for the Spring and Summer months.
Monday, September 3rd, 2007
Some new conventional wisdom is forming around the future of the housing market. It ain't pretty.
But this shift in mood is inviting a range of people to speculate – er, let's try a better word – predict what's next.
Oh, predictions, what perils they hold. You may some day be held up as a soothsayer, or fool. Here are some of the most intriguing of the last week:
Housing prices down 7% in 2007, and 7% again in 2008 (using the Case-Shiller methodology, which differs from median-price measures). This one comes from Goldman Sachs researchers. They also put forth several specific estimates of declines in new housing construction and sales, existing-home sales, and residential investment (a broader economic measure – they are extremely pessimistic on this one.)
Housing prices down 16% in California, 20% adjusted for inflation, by 2009. This one is from Global Insight, a private forecasting firm (hey, it's what they do), via the New York Times last week. That story has gone pay now but this quickie references it.
Housing prices down 30-40%. This is courtesy of Edward Leamer, director of UCLA's Anderson Forecast. We assume his timeframe is peak-to-valley, no dates as of yet. His view, via Bloomberg:
Leamer said in an interview today [Aug. 31] at Jackson Hole that some former "hot markets,'' such as pockets of California, may see declines of 30 percent to 40 percent.Hey, now, we resemble that remark.
Housing prices could drop by half. This is part of a paper prepared by Robert Shiller (Yale economist who is credited with calling the dot-com bust) for the Kansas City Fed for this weekend's Jackson Hole conference. Click here to go to the conference website; the Shiller paper is the second on the list of downloads. Money quote:
[T]he examples we have of past cycles indicate that major declines in real home prices – even 50% declines in some places – are entirely possible going forward from today or from the not too distant future. Such price declines have happened before. In the last cycle in the United States... real home prices fell only 15% from the peak in the third quarter of 1989 to the fourth quarter of 1996, but some cities' real prices fell much more. Los Angeles real home prices fell 42% from the peak in December 1989 to the trough in March 1997.Best time to buy will be 2009. That's the considered opinion of SoCal RE investor Kyle Kazan, splashed all over Sunday's Daily Breeze. (How to describe an article that was literally teased above the masthead on Page 1?) The article is a must-read for its local angle and its explosion of descriptive language: "perfect storm," "death-spiral," and the enigmatic, "The South Bay is a microcosm unto itself."
Best time to buy will be 2010 or 2011. In perhaps the least analytical of our links, "The Great Loan Blog" says you'll be in the best position after pretty much all of the ARMs now in the pipeline have adjusted.
Notice how we've scrubbed any reference to a national economic recession. Those predictions are flying everywhere these days, too.
Housing decline and recession seem to be intertwined in many analysts' predictions, but we're focused on one issue here – local home values – as best they can be deduced from these big thoughts.
Surely there are contrary views...
UPDATE 9/4/07: The Robert Shiller paper is now quoted above and a link is provided to download the whole paper.
Sunday, September 2nd, 2007
You know things are getting strange when the American president sees fit to stand in the Rose Garden and promise a solution to the housing market's woes, especially burgeoning foreclosures, as he did Friday. Mr. Bush's considered opinion is that:
[S]ome homeowners [took] out loans larger than they could afford, based on overly optimistic assumptions about the future performance of the housing market.That must be obvious by now.
Mr. President, are you saying we should not be "optimistic" about the "future performance of the housing market"? Uh-oh. This guy is usually pretty optimistic.
And you know the news is probably bad when it's released on a Friday – getaway day for a long weekend, no less. (Ben Bernanke shot out a few of his own ideas Friday, too.)
Yes, Bush's plan is bad. Mostly because it's inadequate to "solve" the housing problem. There goes our president, bringing insufficient resources to the job again.
Bush is going to open the wallet of the Federal Housing Administration (FHA) to a subset of all home buyers with toxic loans, and help them refi. You can get a new FHA loan if:
- You have at least 3% equity in your house.
- You're not in default (unless you went into default after a "teaser" rate expired).
- You can prove you can make the payments on a 30-yr. fixed loan at about 6.5%.
And about that 30-yr. fixed at 6.5 – a good rate – that's the sort of traditional financing most homebuyers of the last 5 years have been trying to avoid, for good reason. No wonder they are estimating this will cover just 1 in 6 of all new homeowners in trouble.
So the Bush plan suffers from several flaws:
- It's small. It is not even supposed to save 83% of the homeowners it is supposedly targeting. Perhaps 80,000 people will qualify. The mega-trend in foreclosures will continue.
- It's large. The FHA plan puts the government in the mortgage business on a wide scale. FHA won't (and can't) replace the private sector, but it could get the US on the hook for at least $25 billion in new mortgages on homes purchased during a bubble.
- It's for cheap markets. It doesn't apply to any loans over $362,790. (There's a chance they'll raise that to the conforming-loan limit of $417k – great, thanks.)
Rest assured, this is just the opening volley in DC. As the market's woes grow (remember that chart with subprime going "China Syndrome" next year?), there will be political competition to solve a problem that seems, honestly, beyond the reach of do-gooders.
The roots of easy money were in "overly optimistic" global capital markets. Those markets have turned pessimistic now. Bush and Bernanke want to cheer them up again, but it's a long way back to 2005-06, or even back to July 2007.