Palm Blues

Posted by Dave Fratello on Wednesday, July 23rd, 2008 at 3:57am.

In the past week, the number of new-construction offerings in the Tree Section priced below $2m has doubled – from 2 to 4.

And now, in a sign that we've reached a new stage in the working-off of stale, new-construction inventory, both of the new sub-$2m listings are in the early stages of foreclosure. Notices of default were filed on both properties July 8. (See PropertyShark.com.)

2611 Palm (pictured; click address for more details via Redfin) is the longest-running new ("new?!?") home on the market, 560 days at this writing. (It began Jan. 10, 2007.)

This week's cut was $196k. At $1.999m, it's down $496k (-20%) from its start at $2.495m.

2509 Palm isn't far behind, at 460 days (April 19, 2007).

This week's cut was $200k. (See the listing price history below.) At the same $1.999m, it's down $450k (-18%) from $2.449m.

Both homes were developed by the same builder – he of the "Crystal Ball" ad. Money quote: Prices "will not and cannot come down another 10% this year."

And both were financed by the same bank – yes, the one whose name has festooned so many green construction fences around town for several years running.

We'll take it as a given that this partnership was quite profitable for both parties for several years, but, in these two cases, things have broken down as the market has turned.

Why have these two homes stuck around while others have been able to sell?

Location doesn't seem like a big strike for either home. 2509 Palm is on a short, private cul-de-sac street. It is, however, sandwiched between Marine and Ardmore. 2611 Palm is on a fairly isolated part of Palm north of Valley, but perhaps too close to Valley for most tastes.

Both homes are clearly subject to the criticism that they're "cookie-cutter," a complaint we hear often about various new homes in the Trees. They each squeeze 5br and 3200 sq. ft. onto a 4480-sq.-ft. lot. The layouts are familiar, some bedrooms a bit cramped, and you get just a tiny back yard. 2611 Palm included some, achem, unique touches to the upstairs baths – creative uses of glass block – which were not a big hit.

Problems can be overcome with pricing. But until this week, neither listing was aggressive. Both actually seemed to lag the market substantially, which just meant more time on the market.

This year, 3 newbies in the Trees have sold for less than $2m:
  • 1901 Poinsettia (5br/5ba, 3200 sq. ft.) was the first to be priced below $2m and to go into escrow, dropping $500k over about 6 months to close at $1.999m in March;
  • 3104 Pacific (5br/5ba, 3200 sq. ft.) closed before Poinsettia at $1.950m in late February, having fallen just $200k; and
  • 2309 Pacific (5br/4ba, 3200 sq. ft.) – literally the twin of 2611 Palm – sold for $1.890m in late April, down $400k from its start.
Also, the twin of 2509 Palm, 2509 Walnut, is in escrow – last listed at $2.099m.

It may also be worth noting that another long-running (443 DOM) new-construction listing on this street, 2310 Palm (5br/3ba, 3150 sq. ft. with very distinctive Spanish styling), closed in December 2007 for a big discount – $2.2m, fully $499k off its $2.699m start price. (See "The Mystery of 2310 Palm.")

The gradual decline of the lower end of the new-home market has been striking to watch. Equally striking is the fact that there are new homes selling – several near $2.7m in recent weeks:
  • 570 27th ($2.680m)
  • 2701 Palm ($2.749m)
  • 2705 Palm ($2.689m)
  • 668 33rd ($2.738m)
  • 742 33rd ($2.7m)
  • 664 33rd ($2.605m)
Only 2 of those 6 homes were substantially larger than the 2 Palm listings that are now below $2m. Indeed, the neighboring newbies on Palm listed above (2701 and 2705) are both just 3300 sq. ft. Obviously, build quality is a major factor in these higher-priced sales.

2509 Palm and 2611 Palm are now priced to draw interest they just haven't had so far. And yet, they're still both asking $2m while in default. Who will have the last word: bargain-hunting buyers or the auctioneer on the courthouse steps?
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