Movement on the Perimeter

Posted by Dave Fratello on Monday, February 25th, 2008 at 6:07am.

One factor that will tend to make the local RE market sluggish is when buyers get picky about location.

Oh, we know, location (x3) is the RE mantra. Everyone knows location is important.

But in more frenzied times, buyers' goal is to buy something, anything, ASAP, and not to let a specific street or location trip them up. If they're trying to buy the ZIP code, after all – or the school district – they might look past things that suddenly seem important when they have a choice, like those refinery stacks they would see each morning out the kitchen window as they make the kids' lunches.

In a calmer market like today's, sellers can overcome their homes' location issues only with realistic pricing, or big adjustments.

In the last few days, 2 listings proved that location issues need not be insurmountable:

790 Rosecrans (pictured above), which MBC has described as both "lovable" and "awful," is just a tired, older home that looks out on an entry/exit gate for the refinery. Because it's fairly large (3250 sq. ft., though just 3br), the sellers no doubt felt justified starting the price near $1.6m ($500/PSF) on Aug. 1, 2007. By December, the price was down almost $300k to $1.295m, where it lingered till the sellers made a deal in the last few days.

That latest list price equated to $398/PSF – a new low for the Trees in recent times – and you might assume the final price is lower.

3613 Oak (pictured at right) presents a different kind of case. It's on the small side (3br/2ba, 1400 sq. ft.) and, as we noted in the Market Update just a few days ago, it's got "a big location issue – just off Rosecrans, facing out onto a commercial building."

Oak, Rosecrans, commercial – a triple whammy.

Defying the odds, the sellers made a deal within 2 weeks. Maybe that's because they did not overreach on price. They began at $1.089m, a price that would help them to almost double their money (they paid $555k in Aug. 2001).

Let's face it, a million bucks is still a lot of coin for a small home in a sub-subpar location like this, but Oak also had the lowest start price for any livable, 3br home in the Trees that we have seen in a year, probably much longer. (MBC has been publicly tracking for a year.) That's how you make it happen.

Recently the proportion of SFR inventory in off locations has been growing. The sellers will all have to deal with the price impact of pickier buyers.

Let's count first just by looking at homes that, like 790 Rosecrans and 3613 Oak, are on the outer perimeter of our subject region west of Sepulveda.

Start with Oak Ave. in the Trees. Entering Monday, there are 6 active listings on Oak, 2 of those on the "wrong" side (east/Sepulveda side). There was 1 more on Larsson, Oak's equivalent in the Hills (it's also on the "wrong" side). Add 1 more home on Rosecrans. We've counted 8 on the outer-most perimeter.

Now add 8 more listings in the Trees on 35th St. or north of it, an area where – in many cases – the refinery is a profound presence. Add 1 more from the Sand on 36th Pl. with refinery issues (among others; see "A Real Turkey").

That's an impressive 17 listings (out of the 84 total active SFRs) around the less-desirable outer rim.

We also need to consider busy streets:
  • 3 listings on Highland;
  • 2 on Pacific;
  • 1 on MBB;
  • 1 on 2nd in the Hill Section; and
  • 1 on Blanche (in addition to 1 already counted above).
So we're at 25 out of 84 – nearly a third (30%) – in which location is an easily identifiable problem. That's before we start talking about homes on alleys ("Places"), homes on other so-so streets or quaint homes sandwiched by big boxes, all real location issues.

Once buyers extract their price (cuts) to get the more marginal homes sold, comps for everyone are affected.

Some sages say it's the marginal listings that ultimately define the market. We don't have many distressed sellers (foreclosures, short sales) at this time, but we've got plenty of location-challenged inventory. These listings could prove to be the leading edge of a wave of price-chopping – at least those that can make a deal.
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