Getting the Two-Year Itch

Posted by Dave Fratello on Thursday, May 24th, 2007 at 11:36pm.

There are any number of reasons people sell their homes.

But when you see one go up for sale almost exactly two years after it was last purchased, you might first guess that the sellers are thinking: Tax-free profit!

Thanks to our tax code, you can reap up to $500k in capital gains (for a couple) on a home sale tax-free. You just have to have made it your primary residence for 2 years.

Today in MB (west of Sepulveda), records indicate these active listings were purchased in late 2004 or in 2005:
  • 3009 Highland – paid $1.225m in 7/05, selling for $1.369m
  • 737 36th St. – paid $1.230m in 3/05, selling for $1.785m
  • 2812 Elm – paid $1.584m in 6/05, selling for $1.769m
  • 1800 Laurel – paid $1.6m in 12/04, selling for $2.35m (remodeled)
  • 225 1st St. – paid $1.685m in 12/04, now selling for $1.995
  • 746 31st – paid $1.7m in 1/05, now selling for $2.399m
  • 718 Poinsettia – paid $1.85m in 9/05, selling for $2.199m (w/ plans)
  • 601 Larsson – paid $2.0m in 9/05, selling for $2.395m
  • 3011 Elm – paid $2.8m in 7/05, selling for $3.095m
Now, let's look at those again based on their markups, in $ and % increase in (perceived) value since purchase:
  • 3009 Highland – $144,000 (12%)
  • 737 36th St. – $555,000 (45%)
  • 2812 Elm – $185,000 (12%)
  • 1800 Laurel – $750,000 (47%)
  • 225 1st St. – $310,000 (18%)
  • 746 31st – $699,000 (41%)
  • 718 Poinsettia – $349,000 (19%)
  • 601 Larsson – $395,000 (20%)
  • 3011 Elm – $295,000 (11%)
Now, we know not all of these have hit the 2-yr. mark, and they may not all be owner-occupied. Regardless, MBC is interested in these listings because of what they might tell us about market direction. Same-house sales are among the best indicators over time.

Based on these listings, sellers' opinions about the state of our market range quite a bit, from people thinking their homes have appreciated a modest 11-12% in 2 years to others who think they're up 20-40% or more.

Now that the sellers have let us know what they think, as these homes move, we'll see what today's buyers are saying.

Soon we'll have data from these recent sales with 2005 last-purchased dates:
  • 2500 Pacific – paid $1.005m in 8/05, listed at $1.249m in 4/07
  • 628 12th – paid $1.775m in 7/05, listed at $1.879m in 5/07
  • 228 5th Pl. – paid $1.660m in 8/05, sold for $1.7m in 3/07
All three of the homes above are now in escrow.

5th Place was the only closed sale of the group we're studying, and it's interesting there that the sellers got just $40k more, 19 months after paying $1.660m. However, that house went right back up for sale and is now pending at $1.769m. (An informant tells us the buyer this March got a job transfer during escrow, and had to sell again.) So we have to wait for the new closed sale price.

We've also seen two sellers with the two-year itch apparently quit:
  • 864 12th Ct. – paid $1.469m in 8/05, was listed at $1.549m in 3/07
  • 2909 Laurel – paid $2.6m in 9/05, was listed at $2.85m in 4/07
Both of these homes were listed less than 45 days before they vanished. It could be that they got no nibbles and thought they couldn't get more than they paid, but MBC has no real info on these.

For what it's worth, MBC has seen several examples east of Sepulveda, too, but since our focus is on the beach side of Hwy 1, we'll stick to these.
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