Newbies Slipping in the Trees

We're seeing the bar being lowered time and again as new homes sell in the Tree Section.

New case in point: 2309 Pacific. This one hit the market last Spring (in May) at a time when a moribund market had hit an unexpected patch of new enthusiasm.

The listing began at what seemed like a lower-end price at the time for new construction: $2.299m. But the buyers that were out were picky, and virtually any excuse was good enough to pass on a home – a Pacific location being an obvious strike.

So 2309 Pacific hung around. And hung. Around.

It was staged, then un-staged. It was re-listed.

As the months passed, the action finally happened only after a recent, seemingly reluctant price chop to $2.099m. But oh, what action.

A buyer swooped in at that point and said something like, "nice enough house, nice new price cut, now take another $200k off now and we're in." And soon a deal was inked.

The home closed for $1.890m last Friday. It's a new (recent) low for new construction in the Tree Section. We're now under $1.9m, when recently seeing new homes sell below $2m was news.

Here are some recent sales (last 6 months) in order of their closings with their drops from initial asking:

• 2310 Palm – $2.200m (-$499k/-18%)

• 2807 Elm – $2.100m (-$799k/-28%)

• 648 35th – $2.075m (-$375k/-15%)

• 3104 Pacific – $1.950m (-$199k/-9%)

• 2709 Oak – $1.950m (-$445k/-19%)

• 1901 Poinsettia – $1.999m (-$500k/-20%)

• 2309 Pacific – $1.890m (-$409k/-18%)

We also note that one new home was recently listed for sale below 2309 Pacific's closed price, but it has canceled. 1144 Elm had begun at $1.999m last November, and was last at $1.879m. (We're assuming it's rented but we don't have info yet.)

Above, we have selected sales that exemplified the recent trend toward substantially lower sale prices, including cuts below $2m. Sizes ranged from 3200-3600 sq. ft. We'll cover the rest in a moment.

There was some argument when 2807 Elm first sold in December 2007 as to whether it was a bellwether or an anomaly. Now it appears that it was, in fact, the leading edge of a trend toward lower sale prices for new homes. Its $592/PSF price was exceeded only twice in the subsequent 5 sales (from this list), though not by much ($625/PSF being the highest, on 1901 Poinsettia).

In the same span of time, here are the other closed sales of new homes in the Trees:

• 2612 Poinsettia – $2.199m (-$200k/-8%)

• 604 15th – $4.200m (pre-market sale off MLS)

• 613 15th – $4.050m (-$129k/-3%)

• 2100 Flournoy – $2.750m (-$450k/-14%)

• 644 33rd – $2.949m (-$301k/-9%)

Most of these are higher-end sales that don't tell us as much about the fate of smaller, less-well-located new homes that have been the majority of sales and which continue to dominate the lingering inventory.

2100 Flournoy is the rose in this group of sales, a home only a bit bigger than the standard 3200 sq. ft. Tree Section home at 3600 sq. ft. That home netted the highest PPSF of new homes offered on the open market ($764/PSF). Here's a theory: Quality construction in a nice location will still fare well, even if the builder does have to reduce his ambitions.

2612 Poinsettia is an outlier because, while tax records do show $2.199m ($687/PSF) as the closed price, the property appears to have been purchased partly in exchange for a Torrance property that went to the builder. That complicates an exact valuation.

So where does this discussion leave us?

The leftover twin of 2309 Pacific, 2611 Palm, would appear to be in deep trouble. It began at $2.495m last year, and cut to $2.285m after Pacific went into escrow. Its location is plainly superior to its now-sold twin, but can you really say it's $395k better, as the current price implies?

Two other twins, 2509 Walnut ($2.199m) and 2509 Palm ($2.299m), each offered for more than 250 days, face some price pressure as well. It would not be a surprise, given recent activity, to see one go for close to $2m, or under.

There are several more new homes of comparable size (3200-3400 sq. ft.), many newer to the market, currently priced between $2.3m-$2.7m. As always, there are adjustments to make for location, build quality, etc., but as the bottom moves down, so, too, do the higher-end properties.