Westside Starts to Crack, 42% off in Santa Monica 90402.

Here we are in mid summer, and a significant meltdown in Santa Monica Canyon has just appeared. Hats off to Santa Monica Distress, for coming up with this one:

333 E. Rustic Rd. Santa Monica, 90402
2+1, 1029 sqft house, 6403 sqft lot
Built in 1924

Sold on 7/26/06 for $1,500,000
Sold on 7/6/09 for......$875,000

That's a hefty $625,000 or 42% off. With the market peaking in 2007, it's probably close to 50% off it's peak price. Sure, there are those that will say, "but that is in the canyon". True, however this is still one of the prime areas in Los Angeles. Perhaps, even more important is, this house was an REO, and shows banks are getting more realistic. If the banks begin unloading their shadow inventory, look out below. We may get something like we have never seen before.

On a side note, I'm hearing even Little Holmby is showing signs of distress. A lot of inventory for sale, long market times, few reductions and no buyers. Sounds like some are headed or already underwater.

Why all the "FOR RENT" signs ?????????

It's hard not to notice all of the "for rent" signs on the Westside. INMHO it reflects the real state of our economy. JOB LOSSES. It doesn't matter how favorable terms are to buy real estate if you have lost or are worried about losing your job. Perhaps, many homeowners are hoping to wait out the recession, only to test the market next year or after. Good luck. The main problem we face is the disappearance of high paying jobs in the FIRE (Finances, Insurance & Real Estate) industries. The jobs that are being created now are in the retail and service industries. Where are these new high paying jobs going to come from now that the stock and real estate market bubbles have popped? Until GOOD JOBS are CREATED, the only direction for real estate is down.

But The Westside is Different!

How many more times will we hear that one? Denial is not a river in Egypt. It is interesting to see homeowners who bought during the 2000s defend their purchase, even though, all the signs point towards a continued price correction. EZ credit that fueled the housing bubble is gone and the air is rushing out now. To think that Westside buyers didn't take advantage of the credit bubble is nonsense. If anything else, they are probably more leveraged, due to a one time shot at liar loans, interest only and option arms. The end result has just been delayed 6 months due to goverment tricks and is now scheduled to hit at the end of this year. Waiting it out will not be the best strategy for these sellers and they need to get serious about dumping their homes before taking on water. The Alt-A / Prime Tsunami is landing soon. The Westside is no different and will see close to 50% declines

When Will Appreciation Return To Westside Real Estate?

This is what buyers should be most concerned about. Despite all the hope, spin, denial or delusion, the facts state that prices are heading down. Not very surprising, when just about everything else is also trending down. Speculation is a dangerous game these days, and if you are banking on the past, the odds are against you. Wages and incomes are all taking hits in businesses, both public and private. Everyone is talking layoffs, salary and benefit cuts. The demand for our overpriced housing is getting weaker and weaker each day. Sure, you may find a few instances of housing with multiple bids, but they are catching a falling knife due to being misinformed about the market. There will always be those who make bad financial decisions. The truth is the market is just plain ugly right now. Realtors know it, Bankers know it, anybody remotely tied to the real estate industry knows it. Hopefully, now you know it.

Maybe now your hearing chants the bottom is in, or near. In the past, that meant another real estate bubble was close at hand. Not this time. Many believe we could continue downward at 5-10% annual depreciation rate throughout the next decade (Japanese style). The chance of any sizable appreciation appears remote, given the macroeconomic headwinds facing the US.

What would you be risking if you waited 1,2 or 3 years to purchase a property? Or better yet, what would you risk losing IF you purchase in the next 1,2 or 3 years? Unless you find an absolute steal or pre-foreclosure, chances are you are buying a depreciating asset. Look at the record high unemployment, extremely low sales volume and astronomical inventories. It's really about supply and demand, Economics 101...

Where's the Bottom?

That's the million dollar question? Is it at a certain price? Or, during a certain year? Better yet, when will we see the first signs of appreciation in residential real estate? Obviously, there are many opinions to these questions, and I welcome them all. However, please back up your opinions with some FACTS. Dr. Housing Bubble has great evidence about the California Market that needs to be read by everyone. It is titled "Foreclosure Reality Check" . He provides undeniable data that will make everyone think twice. Patrick.Net, also has excellent daily statistics that must be looked at. If you want a good beat on the market, I highly suggest reading these two blogs daily. Both of them are linked in my Favorite RE/Economic Blogs Section to the right.

It's my belief the coming wave of ALT-A, Option ARMs, and Prime loans going sour, will deal a devastating blow to the Westside. Until we cycle through these loans in 2012 (Credit Suisse), real estate that hasn't corrected at least 50% from it's peak (2007), will get hit hard. Then, we'll drag along the bottom until 2015, before any hint of appreciation is felt. Remember, the biggest real estate bubble in our history started in 1997 and lasted 10 years. We are only 2 years into this downturn, and when has a real estate crash not affected ALL levels of the market?

This summer will be the last chance for sellers, if they are smart. Come September, we'll see obvious distress on the Westside, and prices will plummet. Late summer of 2009 marks the major turning point on the Westside. 2013- 2015 will be the bottom after all the garbage loans are worked through. The banks got us into this mess, and nothing else will get us out.

If you have knowledge about a certain area on the Westside, please chime in with your opinion. We all need to hear what bottom prices for SFRs might look like in your neighborhood.

25% off on the Westside, How Much Lower Will it Go?

The average Westside home has declined approximately 25% since 2007. Only 2 years into what is historically a 7 year cycle, how low will it go? The big question is where will all these buyers come from to pay current bubble prices? With the FIRE (Financial, Insurance and Real Estate) economy losing many high paying jobs, where will the new high paying jobs come from? Most jobs now being created are from the lower paying service sector?

After this summer, ALT-A and Prime resets will throw more fuel into the fire, creating pricecuts in order to get a property sold. We have a paradigm shift in housing, where the emphasis is back to fundamentals such as "verifiable income" and sales price/rent ratios. Like a bubble that pops slowly and eventually lets more and more air out, the worst is yet to come. Don't think for a minute that Westside homeowners from this decade aren't leveraged. If anything, they knew how to play the credit game much better than subprime players.

50% 0f peak prices seems to be what buyers are willing to pay, when foreclosures dominate the landscape. Although we aren't there yet, give it time.

What a Difference 3 Years Makes....

Since the market peaked in 2006, we have witnessed a steady decline in sales volume and and increase in housing inventory. Let's take a look at 5 entry level areas on the Westside and see exactly how much business has dropped in May (YOY) since 2006. The following data is available on Melissa Data and compiles the number of sales and sales averages by zip code.

Mar Vista 90066
(2006) 49 sales x $782K = $38,318K
(2007) 34 sales x $824K = $28, 016K (-26.9%)
(2008) 13 sales x $843K = $10,959K (-71.4%)
(2009) 11 sales x $569K = $6,259K (-83.7%)

Beverlywood 90034
(2006) 37 sales x $792K = $29,304K
(2007) 34 sales x $697K = $23,698K (-19.1%)
(2008) 12 sales x $830K = $9,960K (-65.%)
(2009) 4 sales x $507K = $2,028K (-93.1%)

Culver City 90232
(2006) 14 sales x $795K = $11,305K
(2007) 4 sales x $676K = $2,704K (-75.7%)
(2008) 5 sales x $805K = $4,025K (-63.9%)
(2009) 1 sale x $675K = $675K (-93.9%)

Marina del Rey 90292
(2006) 36 sales x $830K = $29,880K
(2007) 14 sales x $1,293K = $18,102K (-39.4%)
(2008) 8 sales x $886K = $7,088K (-76.3%)
(2009) 6 sales x $569K = $3,414K (-88.6%)

Santa Monica 90405
(2006) 26 sales x $1,178K = $30,628K
(2007) 17 sales x $1,020K = $17,340K (-43.4%)
(2008) 15 sales x $789K = $11,835K (-61.4%)
(2009) 8 sales x $734K = $5,872K (-81.8%)

As you can see, sales volume has literally dropped off a cliff in the last 3 years. Financial problems first began showing up in 2007 and have continued getting worse in 2008 and 2009. The trend is clear with prices dropping, inventory swelling, credit tightening and foreclosures creeping in. With the last real estate recession continuing for 7 years, you can see we have a ways to go.

Don't buy the hype and your patience will be rewarded.

Move Up Market Just About D.O.A.

The latest reports on increasing sales in Southern California are true! Too bad it's for foreclosure sales in distressed subprime markets, that attract only first time buyers and speculators. This does nothing for the Westside market, where starters homes still hover around $700,000. So forget all the spin and headlines in the media. Here on the Westside, we have record inventories and some of the lowest sales numbers on record. Its literally is a "tale of two cities" or bifurcated market, where the lowest end is surging due to foreclosures and the mid to high end is almost dead on arrival.

The absence of the move-up buyer has drastically affected the sales volume transacted on the Westside. With mostly foreclosure and speculator sales, there are few sellers to buy the next level home. Multiply this by 3 or 4 and selling a home at the highest level becomes much more difficult. Compounding problems on the Westside are difficulties in acquiring Jumbo Loans over $729,500. Lenders such as Wells Fargo are now requiring 20% down and asking for 40% of the Loan Value in savings! Who in the right mind is going to risk that kind of money on a declining asset? Not the banks. That should tell you something.

With Prime loans defaulting at the highest rates now, the Westside is in for a rude awakening. Over 66% of the outstanding mortgages in the U.S. by volume are prime loans. 1 out of every 8 mortgage holders are now in default and the worst is yet to come.

Don't buy the "green shoots" etc. spin. Look at the fundamentals and you'll see the real estate market is sick and getting worse day by day.

Which Westside Areas Have Bloated Inventories?

As we head into the summer selling season, it's important to know which areas have the most housing inventory. This is easily calculated by taking the number of homes for sale and dividing it by the number of homes sold in a month. The resulting number, gives you the total number of months it would take, to clear the housing inventory at the current sales rate. A housing market at equilibrium generally has 5 - 7 months of housing inventory. Anything over 5-7 months, is considered excessive and causes price declines due to over supply. Looking at the current number of homes listed for sale by Redfin, dividing them by the total number of April sales released by Dataquick, results in the number months of housing inventory. Below, are the areas having the greatest imbalance and are ripe for price declines.

Looking at Houses first we find:


Culver City 90232
(12) for sale / (0) sold = (??) months of inventory

Santa Monica 90404
(8) for sale / (0) sold = (??) months of inventory

Malibu 90265
(342) for sale / (9) sales = (38.0) months of inventory

Westwood 90024
(49) for sale / (2) sales = (24.5) months of inventory

Beverly Hills 90210
(296) for sale / (15) sales = (19.7) months of inventory

Bel Air 90067
(106) for sale / (5) sales = (21.2) months of inventory

Venice 90291
(124) for sale / (7) sales = (17.7) months of inventory

West Hollywood 90069
(144) for sale / (9) sales = (16.0) months of inventory

Brentwood 90049
(261) for sale / (18) sales = (14.5) months of inventory

Santa Monica 90405
(56) for sale / (4) sales = (14.0) months of inventory

Pacific Palisades 90272
(192) for sale / (14) sales = (13.7) months of inventory

Marina del Rey 90292
(44) for sale / (4) sales = (11) months of inventory


Now let's look at Condos:


Santa Monica 90402
(33) for sale / (0) sold = (??) months of inventory

Culver City 90232
(13) for sale / (0) sold = (??) months of inventory

Century City 90077
(83) for sale / (2) sales = (41.5) months of inventory

Beverly Hills 90210
(64) for sale / (2) sales = (32.0) months of inventory

West Hollywood 90069
(167) for sale / (8) sales = (20.9) months of inventory

Marina del Rey 90292
(172) for sale / (10) sales = (17.2) months of inventory

Venice 90291
(34) for sale / (2) sales = (17.0) months of inventory

Mar Vista 90066
(79) for sale / (5) sales = (15.8) months of inventory

Westwood 90024
(202) for sale / (14) for sales = (14.4) months of inventory

Santa Monica 90405
(42) for sale / (3) sales = (14.0) months of inventory


And just for good measure, some Houses in the Southbay:


Playa del Rey 90293
(30) for sale / (1) sale = (30.0) months of inventory

Hermosa Beach 90245
(76) for sale / (4) sales = (19.0) months of inventory

Rancho Palos Verdes 90274
(243) for sale / (20) sales = (12.1) months of inventory

Manhattan Beach 90266
(206) for sale / (23) sales = (9.0) months of inventory


With more homes bound to hit the market during summer, how many sellers will need to sell? With many homeowners underwater and Alt-A/Option ARMs looming, the end of summer should be the beginning of major price cuts.

Excessive Inventory to Increase Foreclosures on the Westside

Notice of Defaults and Foreclosures in the Alt-A and Jumbo arenas are increasing faster than Subprime now. As most of the subprime properties have corrected 50% or more, Westside properties at 25% off are next in the pipeline. With price resistance in the Jumbo Market, here are reasons why price cuts should occur:

1) Excessive Inventory
2) Extremely Low Sales Volume
3) Loan Resets and Recasts
4) Organic Sales vs Foreclosure Sales
5) Underwater Homeowners
6) "One and Done" Foreclosure Sales
7) 20-25% Down Payments Required
8) Job Layoffs

It really comes down to market turnover. The amount of homes for sale divided by the total number of houses sold. With some areas such as Pacific Palisades having 20 months or more of inventory, something has to budge. Underwater homeowners who bought from 2004 - 2007 may have to sell, before their Option ARM Loan explodes. Too many people have toxic loans with little or nothing down and will need to sell or walkaway.

Also, if you look at the recent first time buyer sales occurring, most are distress (short sale, auction, foreclosure) as opposed to organic (normal) sales. This gives a "One and Done" scenario, which means there's no move-up buyer for the next transaction. As the real estate chain is choked off, it could effect 4 or 5 other transactions up the line.

Now, some say the banks are lending, if you have 20-25% down. True, because they expect the added price cut will eat up your money and not theirs. In addition, you'll need excellent income and pristine credit to get a good loan.

Last but not least is the job picture. Despite all the talk about "green shoots" and the economy being "less bad", people are unemployed on the order of 1/2 million more each month. Throw in the underemployed and people who have given up looking for work and you get a record number of people without jobs. The bottom line is without decent jobs, the real estate market will continue floundering.

What Does $10,000,000 Buy In Santa Monica These Days?

(Click on photos to enlarge)

A brand new 10,621 sqft spanish style home with 10 bedrooms and 7 bathrooms on a 24,280 sqft lot overlooking Santa Monica Canyon at 808 Adelaide Place, 90402. That's a hefty sale when supposedly the market is so weak isn't it?

Well, lets take a look at the history of this house a little closer.

Listed for $16,975,000 on 3/31/08
Reduced to $12,450,000
Reduced to $11,450,000
Sold for $10,650,000 on 4/27/09

(Hat tip to Westside Bubble)

-$6,325,000 or -37.3% off the original list price in just over 1 year. Amazing how quickly things can change in a year. Sure, this is an extremely select market, but it does set a tone for other multimillion dollar properties on the Westside. If this huge new home, with views, on a 24,280 sqft flat lot on the most expensive street in Santa Monica is $10,650,000, what are prices like in the rest of 90402? Even big money is now expecting huge discounts before buying. 25% off isn't good enough anymore. As we head towards summer, more sellers will find their property sitting and losing valuable market time if not priced correctly. Serious sellers will need to be at least 10% off the lowest comp, if they want their properties sold. Otherwise, chasing the market down could end in foreclosure.

Westside Stalemate Ending This Summer ?

The stalemate between buyers & sellers is almost 2 years old now. Will the second summer selling season force the hand of sellers? Or will buyers be enticed by the low interest rates and jump back in? I would imagine there will be a small spring bounce of weak handed buyers and the media will proclaim the bottom is in for housing. Only to see that in fact, it is a "dead cat bounce". Just like the sucker rally in the stock market. The Westside market is stuck for a number of reasons and is quite different than the lower end market receiving all the positive news lately. HELOC abuse, Alt-A, Option ARMs and Prime loan resets in combination with underwater sellers, tilts in favor of buyers this summer. With all the negative headwinds still unresolved, the Westside, down about 25% from 2007, will drop another 15% by September. Eventually, it should bottom out at over 50% off during the next couple years. By 2012, we drag along the bottom for a few more years, until all the excess inventory and inflated prices are worked off.

By the end of summer, buyers will be nibbling at prices that are 40-50% off, depending on the location. Time is on the side of buyers, as 2005 - 2007 sellers are upside down, with 2003-2004 sellers close behind.

Second Tidal Wave of Foreclosures to Affect the Westside, Later This Year

Notice of Defaults (NODs) in California hit an alarming 135,431 during the 1st quarter of 2009. An all time high. That's up 80% from 75,230 during the 4th quarter of 2008. This is primarily due to a foreclosure moratorium by banks, to keep their losses from snowballing. Now we are back to normal, with excess homes piled up in the foreclosure pipeline.

What is different now however, is the type of loans that will be heading toward foreclosure. Up through 2008 we saw the Subprime Wave hit the lower tier of housing . Mainly the outlying areas of Los Angeles were affected like Riverside, San Bernadino, Palmdale, and Lancaster, where lenders could prey on subprime buyers. The proverbial bottom of the Real Estate Food Chain. Many of those homes are now selling at a 50% discount or more . The next wave to hit will be concentrated in the Alt-A, Option ARM and Prime arenas. These loans are much larger in size and include mainly higher end properties. $300,000,000,000 alone are in California and begin resetting in the 3rd and 4th quarter of 2009. The peak of loan resets will be from December 2009 through August 2010. Even though the peak will last through next year, it will remain highly elevated until 2012. This is disaster waiting for the Westside. Many of the Westside loans made from 2004 and on, are Alt-A, Option ARM or Prime and begin resetting in 2009. Especially those 5/1 ARMs that became so popular. As prices have already sunk to 2005 and 2004 in some places, homeowners will already be underwater once their payments increase. If they bought with little or no down payment, walking away from a mortgage becomes a no-brainer.

In addition, we are now seeing accelerated layoffs and some will be forced to sell. With many Westside households requiring 2 incomes, the job loss threat is magnified. Sure, you will hear pundits, realtors, banks, economists preaching now is the time to buy while interest rates are 4-5%. And some will think, they want to get "in" before prices go back up. Don't make that mistake. It is better to buy when prices are lower and interest rates higher. Then you have a chance of rates coming down. Can you imagine trying to sell a property at bubble prices with higher interest rates?

The Westside is down about 20-25% and the downside risk of losing another 20-25% is increasing every day. Smart money is waiting for 40-50% declines before buying. If you read between the irresponsible headlines, you can see that. The bulk of the sales activity is distressed sales. They're few "organic" sales right now. With down payments of 10-25% required to purchase property, you stand a good chance of losing your entire down payment in a year or two.

Now is the time to clean up your finances, get familiar with areas you like and watch the Westside market change this summer. Take a look around during late summer, after the traditional selling season for signs of distress. Later this year should be a possible entry point for some properties on the Westside.

Above all, be patient. There is absolutely, no hurry now.

Builder Bailout in Santa Monica

(Click on photos to enlarge)

What a difference 2 years makes! These 5 townhouses built in 2007, started off in the 1.5 Millions..... Now the builder is trying to unload them before it's too late. Now listed, starting at $899,990, the asking prices are 40% of the original list price. They range from 1200 - 1750 sq ft and are less than 1 block from the beach in Ocean Park. And people thought Santa Monica was immune! My guess is this is just the beginning of big price cuts in 2009.

Buyers are now conditioned to pay 40-50% of peak prices in order to lower their risk of losing a down payment. However, who's to say these have gone low enough? It appears that drastic reductions are needed to get anything sold these days, as the pool of buyers shrinks, while inventory swells. We'll see if these homes are ahead of the curve enough and able to snag some buyers.

Located at 126 Pacific St in Ocean Park, is the price cut big enough to get them sold?

More and More Businesses Shutting Down on Montana

It seems like every day there's another commercial venture going out of business on Montana. Could it be the 90402 is feeling the pinch of the recession? Are people now cutting back on unnecessary expenditures? Yes, definitely. The amount of disposable income has declined with the recession and even the affluent are feeling the pain. Prime mortgages defaults have now passed subprime defaults and commercial property is the next shoe to drop. The question is, how many homeowners are now upside down in 90402 and will be unable to refinance, as they owe more than their house is worth? Could we see a load of inventory hitting the market as the 5/1 ARMs sold in 2004 - 2007 begin resetting this month? Yes absolutely.

How will that affect the values for SFRs in 2009?

It's Official! Prime NODs surpass Subprime NODs

As we have been saying all along, The mortgage mess is not just subprime. It is now being reported that the delinquency rate for PRIME mortgages has now surpassed SUBPRIME mortgages. This was bound to happen, if you have been paying attention to the infamous Monthly Mortgage Rate Reset Chart by Credit Suisse. Prime mortgages resets spike from here on out, until mid 2010 and then barely taper off until mid 2012. That makes those 5/1 ARMs that were sold in 2004 - 2007 come due now. With prices still free-falling in many places and homeowners upside down with no equity, they will be unable to refinance. And just how many of those 5/1 ARMs are on the Westside? A ton. Just think back to 2004 and 2005, when the bubble was at it's peak, and flipping a house meant a 6 figure gain.

The proverbial #$%&^*@! starts to really hit the fan on the Westside.

Bubble Prices vs Job Loss

A week into the stock market rally, combined with misleading housing headlines and some are proclaiming the bottom is in. Hardly. The stock market rally is nothing more than traders smelling a buck, due to increased enthusiasm from the latest government pipe dream. The devil is in the details, as we see it unfolding in the near future. As for housing, the MSM should be held accountable for irresponsible reporting. They reported a 4.7% increase in New SFRs from January to February. This is nothing more than statistical noise caused by seasonal variation. As a matter of fact, January was the worst month on record for New SFR sales. Finally, by looking at YOY comparisons, which is more accurate, it was off by 41.1%! I guess record low home sales are just old news now.

The real story was record unemployment and job loss. Hell, anyone can just drive around and see all of the "For Rent" signs. This is due to people losing jobs, plain and simple. Without a job, it doesn't matter how low interest rates go, you cant even rent a place, let alone buy one. But still, we have bubble "asking" prices here on the Westside. The beginning of the current housing correction was due to overinflated home prices. Now the second part, which will be more serious is due to real recessionary forces just hitting us now. Job losses.

Housing prices will plummet now that very few can qualify with:

1) 20% down
2) 6 months cash reserves
3) Documented income
4) 720 Fico Scores

How many buyers fit into this category now?

Westside RE Market Slowly Grinding to a Halt

The numbers have just been released form Dataquick for February, 2009. Needless to say, they are dismal. What really jumps out is, the number of SFR sales. They have been on a steady decline for months and what we see now is single digits in most areas, with very few deals being transacted. There seems to be a variey of reasons for this:

1) Credit tightening
2) Job loss concerns
3) Lack of qualified buyers
4) Increased downside risk
5) Upside down sellers
6) Accelerating NODs and Foreclosures

These are just a few of the factors affecting the Westside right now. Sure, there are a few buyers that may not be income dependent, but in reality, how many are in that category? 10-15%? Certainly not enough to stem the price declines.

Let's take a look at some Westside areas and see how many houses sold last month.

Culver City 90230 (2)
Culver City 90232 (2)

LA Bel Air 90077 (4)
LA Brentwood 90049 (9)
LA Rancho Park 90064 (9)
LA West LA 90025 (3)
LA Westwood 90024 (4)

Marina del Rey 90292 (2)

Santa Monica 90403 (0)
Santa Monica 90404 (0)
Santa Monica 90405 (1)
Santa Monica 90402 (4)

Venice 90291 (7)

West Hollywood 90048 (5)
West Hollywood 90069 (8)

5 sales in all of Santa Monica!

The Southbay hasn't fared much better either:

El Segundo 90245 (4)
Hermosa Beach 90254 (3)
Redondo Beach 90277 (3)
Palos Verdes 90274 (7)

One bright spot has been Manhattan Beach 90266 (21), but only because median prices fell to $1215K or -29.5% compared YOY.

Other outlying areas are showing impressive sales, combined with lower prices (around 50% off). It's clear, time is on the buyer's side, as they wait until prices drop. What is the magic discount number on the Westside, before people begin purchasing again?

Who's Buying in this Market?

It's no secret, the market has softened, since peaking in 2007. 2 years into the downturn on the Westside, sales volume has slowed considerably, while prices are creeping down slowly. With outlying areas correcting over 50% and sales surging, the question is:

Who on the Westside is buying at these overinflated prices ?

Prices are down approximately 15% on the Westside, with a ways to go in order to correct. My guess is, this summer will be the first of big declines, as buyers continue to wait for distress sales. Are people on the Westside so affluent, they aren't as affected? Or, are they barely hanging in a sea of debt?

With renting being a financially better option and less risk than buying, what is the rationale to purchasing a home right now?