A Tree Section Glut?Posted on Tuesday, May 8th, 2007 at 7:13pm.
Yet another reason: it's where trees go when they're dead. A small forest has been converted into new housing in the last few years.
As you'll see in the Manhattan Beach Market Updates, the going rate for new construction in the Trees is $2.3 million plus. Typical size is 5 br, with an equal or greater number of baths and square footage in the mid-3000s. The higher-end homes reach almost $3.5m, while the high (dream) asking price now is $3.9m.
A busy cycle of lot-buying, house-scraping and new construction has gone on for quite a while in the Trees. A lot of people have made serious money. (And lots of people have moved into very nice homes.)
But as the real estate market slows, this business is looking squishy. In the 5 weeks of Spring thus far, since MBC began publishing detailed tracking data, only one new-construction home in the Trees has gone into escrow (758 27th). Sixteen more are lingering.
Just 7 of these 16 listings have been out for fewer than 100 days. Four have been on the market 101-200 days. And 5 have been listed more than 200 days. (These are actual days on market, not the phony DOM on re-listed properties.)
Interestingly, builders in MB don't seem to be discounting their products much to gin up activity.
Only 7 of the 17 listings have made any reductions at all, including reductions of $30k-$70k on homes priced well over $2m – pointless, token cuts. The second-most expensive listing in the area (2104 Palm) has cut $226k off asking, but it's still near $3.5m. A home that's been listed for 53 weeks (2609 Oak) has been reduced by just $100k (5%) .
There are warning signs here of a market that's glutted. High prices, no buyers, no movement by the seller/builders, long DOM. The air seems very still.
But that's just part of the story. There are now at least 60 more new homes under construction in the Tree Section alone. If just two out of three are spec homes headed for the open market, there are 40+ homes likely to come online in this segment in the next 3-12 months. Here are the current construction sites:
Tree Section Homes Under ConstructionMBC wonders if the intransigence of the seller/builders is borne of experience and confidence, or necessity. That is, do they refuse to cut prices because they know they don't have to, and a buyer will come along some day? Or are they unable to cut because their house-by-house business model requires a sale price at or near their initial list?
60 as of 5/8/07
Let's be honest: This game was easy for a few years, when market prices rocketed upward while homes were under construction. Investors made a lot of extra money when their projects were completed. Everyone looked smart.
Now, perhaps the opposite dynamic is beginning to take hold. If you bought a lot to build on at the market peak (Summer/Fall 2005) and are just now finishing the house, maybe you can't profit at the level you had planned for. Your 10-15% margin might have evaporated in a cooling market. Now what do you do?
MBC will be watching listings of new construction as they come out to see if new market entrants are pricing more aggressively. And of course we'll report on any real movement – price reductions or sales – that are suggestive of the future of pricing in the area. We can count at least 76 groups of people who are wondering about the same things.
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