Sunday, May 30, 2010

Be Prepared to Spend 10 years in the House You Buy Today

The old rule of thumb, before the massive 90s steroid housing bubble, was keeping a home at least 5 years, before selling it. That equation has now changed on The Westside to a new 10 year time horizon. As we continue with more downside over the next few years, see prices flatten out and deal with a "Burned Buyer" syndrome, a decade will have passed before, we see any appreciation from today's pricing.

Let's use a purchase price of $1,000,000 on the Westside. Here is the way I see it, given today's trends:

2010: Purchase a home at $1,000,000 (2004 Prices)
2010-2014 prices decline 20-25% (2000 Prices)
2014-2017 prices flatten out (2000 Prices)
2017-2019 prices creep back up (2004 Pricing)
2019-2020 to cover maint, taxes, insur & commission

My reasoning is based on past bubbles and recent declines in the Westside Market. First of all, it has taken 3 years for prices to decline 20-25% on the Westside so far. Like every previous real estate bubble, we are only half way through the declines, by looking at a return to historical norms. The declines have been slow, but show little evidence of stopping. In 2014, we should experience total capitulation in the marketplace and intersect the historical norm line at 2000 pricing, after accounting for a standard 3-4% annual appreciation rate. Next, it will take 3 years to scrape along the bottom, as it takes time for buyers to gain any confidence in the market again. At this point, buyers painfully remembering the lessons of the last bubble, prices begin to appreciate slowly over the next 3 years. Finally, you should be able to cover your 2010 costs, after taxes, insurance, maintenance and sales commissions, in 2020.

Now, if you love the house and neighborhood, are prepared to spend at least 10 years, or have money to burn, than go for it. Don't believe the realtor hype about anything else. They make their living through sales, remember? Especially, in this marketplace, they will do ANYTHING to make a sale. Just because a home is discounted from a higher price doesn't necessarily make it a good purchase. Perhaps, waiting a few more years before purchasing is a better strategy. Do your own research and definitely know what your own time horizon is.

For those who have purchased in the last 5 years, they could have to wait well into until the 20s, to come out even again.


Anonymous said...

I couldn't agree with you more

I am bidding on houses and find everything decent has multiple offers above asking.

This says to me we are still in the bubble and whatever a person buys right now they will have to stay in for ten years

I was born and raised in the Franklin School District North of Montana. After leaving CA in 2000 for several years, I returned to find my community overrun with this property speculation insanity.

Ironically, even with a very strong combined income, wife and I cannot afford a home in the same neighborhood my gardener lived when I was growing up! He was a decent guy, and I am not making any judgments about working class vs. white collar- we are all just people trying to make it. It is just that I find it ironic that I now couldn't afford his house, even though I have earned an PhD, and my wife is leads a large organization. I actually went to my old gardner's house when I was a boy and purchased a couple of minibikes off of him. It was simple, a 1940's cookie cutter (with great landscaping!) off of Braddock by Centinela.

Back in my day Franklin North of Montana was a sleepy middle class hood and we were not rich by any stretch.

What is happening now, and I can vouch for this having lived in several states outside of CA, is the "X Factor." Basically, I didn't take into account that a majority of people in states across the US would give anything, and I mean anything, to live in Santa Monica. They migrate to SoCal looking for the "good life" and they bring their parents money .

They are buying like crazy right now, May 2010- I suppose that they are looking for a slice of the California dream. To someone who grew up on the Westside, I didn't realize the power of the X Factor until I left town and returned.

Me and my wife are here because most of my immediate family still lives around this area. We would love to raise our children in the company of our extended family, however, we are giving it only one more year before we relocate to an area that offers a high quality of life (safe neighborhoods, good schools, fun things to do, etc.) and is affordable.

If is frustrating to deal with this process, but I'm not special and I'm not entitled just because I grew up in Santa Monica; if we move we will make a great life somewhere else. People have been priced out of their own neighborhoods for decades, so why should it be any different for me?

The X Factor keeps drawing people from all over the US (and the world!) and they are often willing to sacrifice all sanity to "afford" a home here in the promised land

Anonymous said...

Maybe your parents could sell their 90402 house and then but two houses in the 90066 area. This will keep you on the westside and close to your family.

What areas are you referring to with regards to your potential relocation?

Anonymous said...

Real-turd alert!! Trying to bag a listing and make 2 other sales.How pathetic you troll. Get lost!!!

Anonymous said...

Uh - the concensus on this blog is not to buy. Not to buy right now North of Montana and not to buy somewhere else on the West side

No argument there.

The discussion here is about why the prices are so high in the nicest areas

X factor?

Anonymous said...

Check the wall street journal for more evidence that the buyers are nice homes are rushing back in - bidding like crazy for houses over $2 million. Doesn't mean you should buy, but you should note the frenzy

EmailPrintSave This ↓ More.
+ More
close Yahoo! BuzzMySpacedel.icio.usRedditLinkedInFarkViadeoOrkut Text By JULIET CHUNG and JAMES R. HAGERTY
For years, Jennifer Metz and her husband John yearned for a bigger home in San Francisco. Three months ago, the couple started looking, figuring that in this shaky economy, their $3 million budget should provide them a pick of attractive homes and accommodating sellers.

Luxury Going Fast
View Slideshow

Kimberly Hallen/Boston Virtual Imaging

A Cambridge, Massachusetts home
..They were wrong. Hours after seeing a 5,000-square-foot fixer-upper in Presidio Heights with an asking price around $2.7 million, the Metzes put in a bid—and lost. Soon after, they made another offer on a four-bedroom in Russian Hill. Their bid was rejected.

Last week, the Metzes rushed over to a large, dilapidated home in Pacific Heights that needed a lot of work but was asking the (relatively) low price of $2.25 million. The Metzes put in their over-ask bid the next day, but lost that one too: There were nine offers; the winning bid was $2.56 million.

"It's frustrating," says Ms. Metz, a 44-year-old stay-at-home mom whose husband works in finance. "You think you put in a good offer but, no."

After a near-disastrous 2009, the luxury market appears to be making a comeback, driven by growing buyer confidence, improved financing conditions and more-realistic seller pricing. Despite the housing downturn, attractively priced homes in some of the nation's most coveted neighborhoods are selling, sometimes fast and sometimes with multiple offers. Nationwide, sales of homes selling for $2 million to $5 million in the first quarter totaled 2,461, up 32% from a year before, says CoreLogic.

Anonymous said...

Hmm? X-factor? My BS meter just went off. If everyone wants to migrate to sunny Santa monica, then how do you explain the insane housing bubble we now have in Canada and China? The one in China is about an order of magnitude larger than ours.

Do you know that a house in a Beijing now costs more (per square foot) than a house on the Westside?

When Asia/Canada/Australia crashes you better look out below. We WILL be affected.

Anonymous said...

About the post above "Luxury Going Fast"

Don't beleive it. I live in the LA area and seen the low end recover somewhat due to the free 8K government money. The high end is DEAD. Near me there are several houses for sale (> $1 mil) and NONE are selling. There is a house down the street that was purchased for >$2.5 million. The bank kicked out the owner a couple of months ago and now doesn't even list the house. I just walked in their backyard this afternoon and the pool is murkey green. The yard is drying out and weed has started to grow. Recovery... My ASS! All the lying in the mainstream news is bull.

I am sure that the bank isn't even paying taxes and home owner fees. They won't even take care of the pool! We may have to get the neighbors to pump the green water out. There is already crap growing in it, which is clearly a health hazard.

Anonymous said...

Oops, spelling error in my post above : beleive --> believe.

Anonymous said...

Oops, spelling error in my post above : beleive --> believe.

Anonymous said...

Oops - read the wall street journal article. Wall Street Journal piece has facts and figures to back it up.

Why not call up the people quoted in the article, to see if they are "real"

Anonymous said...

I'm not sure that I think the high-end can fall 25% without the lower-end homes continuing to fall as well. I think the federal government will need to do whatever they can to prevent the lower end homes from falling too much more as it would basically bankrupt our financial system and cause it to potentially implode. I also think that the amount of financial and wealth destruction could potentially cause a lot of civil unrest and the government is aware of that risk. The government would rather print money like crazy before they allow this happen. What is interesting is that because most of the developed world like Europe is in the same precarious position and the Asian economies are not developed enough to not be co-dependent, the costs of printing money are less onerous than ever before. The country itself won't be worse off it's just the savers who have carefully hoarded cash watching our crazy overspending people and government. I've been one of the savers for a long time and realize that it is better to have some diversification into hard assets as I believe the scenario I am painting is just as likely as the high-end falling 25% (and in fact is basically correlated). If our economy does ok, the high end is what it is right now...not much inventory and a lot of people with money getting on with life. If our economy double dips and face an implosion, get the printing presses ready. Now, ordinarily I would agree that the housing downturn is just in the early innings (a la early 1990s), however, this time the government responded completely differently than last time. Last time, they forced liquidation of assets through the RTC and this time they printed money to support the banks (and therefore real estate). Just watch, mortgage principal reduction efforts will be next. Besides in the 1980s the wealth inquality gap was just getting started. The explosion of stock options, M&A, private equity, global pension funds and sovereign wealth funds pumping money, hedge funds, etc were all just a gleam in someone's eye. I think the amount of wealth created over the last 15 years on a global basis cannot be underestimated. A lot more of that wealth than we can imagine comes to LA. LA is not the first city you think of and it shouldn't be, but it is more of a global wealth city than all of us who are sitting here complaining about being graduate school educated professionals can imagine.

Anonymous said...

Total realterd and underwater homedebtor alert! X-factor? That's funny. And of course the high end will continue to fall (and it will) while the low end remains relatively stable.

Latesummer, I believe your estimation is reasonable for the upper end westside, although I could see a Japan situation unfolding. Especially since gen-x is a smaller and significantly poorer generation than the baby boomers.

Anonymous said...

I have to say the market is out there for high end homes. I just completed new construction on a SFR in Santa Monica. The home was built for us, but I have had 10 realtors beg me to show it to their clients.

Seems there is very little GOOD inventory out there for new construction in SM.

Got faxed a blind offer over the weekend...

Anonymous said...

I think 8:47am's comments have some merit to them. I have been a bear for a lot time on real estate but the last year or so has shaken my beliefs as I expected the real estate market to crash after the Lehman bankruptcy and market implosion in late 2008. Seeing what the government did to intervene was a lesson I am still absorbing. I feel a lot of us who have waited for years were screwed but the problem is there are many more homeowners than there are those of us waiting on the sidelines. I started looking this year as a result but the market is as 11:25am said. It is white hot with cash or near all cash buyers and no inventory.

This is unfortunately the reality of the current situation although I wish it wasn't. Can any of you smarter bears make some arguments to refute 8:47am for me? All I hear from the bears is that it is going down but when I think about what is going on it is definitely more confusing than it first appears.

Anonymous said...

First Republic Bank says the LA high end is down 10% first quarter 2010 over first quarter 2009. They have no reason to lie. See the link above. They show SF and SD are actually up.

This is probably the only chart I have seen that shows the real high end ($2mm properties average) in LA.

Anonymous said...

Can one buy a decent 3 bedroom, 2 bathroom house in Westwood 90024 north of Wilshire for $1.0-$1.2M?

Anonymous said...

No -- still at least $1.5mm+, and not much in that size north of Wilshire anyway - usually 4br.

Anonymous said...

In 90024, most affordable 3/2 are between Wilshire & Santa Monica and Sepulveda and Bev. Glenn. The houses you're interested in will be in the $800K - $1.2M range, mostly old construction (30s, 40s).

Redfin shows a few sales in the range above over the last year.

North of Wilshire is mostly 4br+ and expensive. There's a small section (not technically in 90024) bounded by Sepulveda,the VA cemetery, Veteran & Montana that has had sales for surprisingly low prices in the last year. The neighborhood south of Santa Monica and North of Pico (also bounded by Bev. Glenn and Sepulveda) has nice small houses.

Anonymous said...

Agreed, Westwood might be slightly more affordable than 90402, PP, Brentwood, etc but not by a whole lot...maybe 10% more affordable but still CRAZY expensive by most people's standards. Agree that South of Wilshire and South of SM are much cheaper but those feel more like West LA generally than Westwood Village.

Anonymous said...

I agree the market is out there for high-end builds, in the low $3M range all-in. The ghastly spec houses are slowly flushing out (nobody really wants them), and the older inventory looks old, beaten, and not worth remodeling. It is a big hassle to go through the process, but the desire to build a custom personal residence is out there - always has been, always will be. Lower lot values will stimulate more builds, and further hurt the big spec junk that is not selling.

Anonymous said...

I agree with 8:44.

However I have a question.

I am thinking of building in the 90402.

I am not a builder,not an architect and I have no special connections in the industry.

My understanding is that for someone like me, I pay 1.6 million for the land and pay 2.0 for all the hard and soft costs, all in, and I wind up paying a grand total of 3.6 for my dream house

My understanding is that if I were in the building industry and knew all the tricks of how to value engineer, how to play the city government people, how to squeeze the subs and etc that I could get my dream house built for 1.4 all in

so for me, being an outsider, I am looking at 3.6 all in but someone that is an insider to the industry is looking at paying 3.0 all in for his dream house in the 90402

Anyone want to comment on whether I am looking at it the right way

Anonymous said...

Please keep the cost estimate Q's off the board - too subjective and variable to answer. A 'dream' house can be anywhere from $300 sf (low-end dream) to +$1,000 sf (serious dream). Get yoiur bids and costs from contractors, not blog posters.

Anonymous said...

I agree....why is that troll always looking for pricing? Get a &%$#*@& contractor and an architect you fool!

Anonymous said...

I just got back from seeing 421 23rd. I think they did a nice job on the finishes. Anyone here have a sense as to what the bids are on that one?

Anonymous said...

Lot value for the 60ft lots are about $2m right now. I don't think a 50ft lot has traded in a little while. Not many lots have come up recently and the last few have gotten snapped up over asking.

That being said the "typical" nice home probably costs about $350/sqft to build all-in including soft costs, landscaping, etc in Santa Monica vs $300 in LA (Palisades, Brentwood, etc). Santa Monica has more strict building codes (better, safer construction but more expensive).

That number includes some profit for the builder/contractor so if you can do itself you can probably shave a little off.

The number doesn't include the cost of carry (property taxes, mortgage--if you use one). You probably need to figure on approximately two years from start to finish.

In fact, if you do a major remodel of an existing home it can easily be a year or more given design, permit process, etc.

Given all the hassle, costs, and how hard lots have been to find recently--that partly explains why people have aggressively gone bidding all cash, etc after existing homes if they are priced close to replacement costs. E.g. lot value + build costs - depreciation.

Now, the question is what is going to happen to lot values...down, flat, or up. A lot of posters on the board would have you believe down is obvious. I'm not sure about that as there seem to be a lot of buyers that want to build and the 60ft lots are moving very fast over asking. 463 17th (8940sqft) just closed last week at $1.92m. Not just in 90402 but in Brentwood and the Palisades as well.

The tear down on 314 S. Anita (8250 sqft) in Brentwood sold all cash over asking with over 10 bids (something like 100 showings).

BTW, I think both of those lots were on the East side of the street (the West side is the sunnier side in the afternoon and gets a slight premium).

Anonymous said...

Agreed, 421 23rd is just a beautiful home. Amazing finishes and super high quality systems. I think it had a lot of interest but not sure where the final bids are. Same with 628 24th. A few years older but also really nice and multiple bids.

There really isn't anything in 90402 really nice that is available for people with means who just really prefer that neighborhood (not that everyone does but some really do). If you want newer or new construction and a larger home with a modern floor plan on the wider lots there are now none on the market after those two got snapped up. I have also heard there are a couple more deals happening off market as buyers are resorting now to approaching potential sellers before they formally list on the MLS.

Anonymous said...

To me it's quite simple but basically impossible to predict. If the economy and stock market hold up, we've seen the bottom in 90402. The current trend is no inventory and lots of buyers with plenty of wealth, income, and cash.

Now, if the economy and stock market are going to seriously plunge because of a double dip then all bets are off. Either the government responds by printing money to prevent the mass hysteria of an economic implosion or we have what we should have gone into after Lehman Brothers...a second Great Depression.

I think the Bears and Bulls both have their points but I think the market at this point is really just too hard to predict. It's basically like forecasting interest rates which is an impossible task especially given the politics behind our government actions.

Buy if you can afford comfortably and need to provide a home for your family. Don't buy if you are speculating or stretching.

Too many people on this blog seems to have too much emotional tied up in whether home prices go up or down.

Anonymous said...

9:21 true...

Anonymous said...

Yes it is a very emotional issue.

On the one hand you have homeowners in the 90402 who bought at the top and lost their jobs -they know they need to sell their houses and hope upon hope that prices will go back up so they don't have to bring a check to the closing

On the other hand you have people that grew up here who always expected to be able to buy in the 90402, people who have constructed their plans and their future lives and their whole identity around living in the 90402 who have been priced out. These people need prices to fall another 20% before they can afford to buy.

Both sides are very emotional, their feelings are raw and they sometimes explode on this blog. It is a touchy subject

Anonymous said...

Perhaps, but to say the market has bottomed is to be blind. Prices are out of kilter with incomes and rents. The treand is down and there is nothing indicating the trend won't continute. What the stock market does is a basically trivial factor.

Anonymous said...

Prices are out of line with whose incomes?

Prices can be out of line with the average income of a person with a job in Santa Monica but still be in line with the incomes of the people buying.

Let's say the average job in Santa Monica pays $50 thousand. Does that mean that 90402 prices have to be in line with this $50k income?

If the average house in 90402 is $2 million, that is 40 times income. Where are you saying that the price to income ratio has to go in order to be reasonable.

Do the math. you will quickly realize that this is absurd. Prices in the 90402 do not have to be in line with the average income of Santa Monica

Anonymous said...

"On the other hand you have people that grew up here who always expected to be able to buy in the 90402, people who have constructed their plans and their future lives and their whole identity around living in the 90402 who have been priced out."

What a bunch of drivel... whole identity wrapped around where they live? I hope to god any vapid twit who has their identity wrapped around a zip code moves far, far away. Same for strivers hoping to claw their way in, pathetic; get a life and live within your means. Put this blog in a time capsule; future generations can read first-hand how arrogant and mindless people were about real estate and their 'right' to live in a good neighborhood.

Anonymous said...

anon June 2, 2010 9:11 PM - prices in 90402 (and anywhere else) should reflect the income of the people living there. From:
If you use the average gross income (2004): $269,033, an affordable mortgage shouldn't be more than 3x - 4x the income. 3.5x is around $942,000. Mythical rich parents, furriners, Persians, lawyers and "entertainment types" aside, that's what the average income in the area can afford. Maybe they put down 50% on their homes but I bet a good number are living beyond their means.

Anonymous said...

Yep, many are just hanging out making the minimum payment until their 5 year option arm loan recasts. They never had the income and never will, except just enough to service that minimum payment. This is another reason why prices are cratering and will continue to crater for the foreseeable future until prices are in line with incomes and rents.

Anonymous said...

You are talking about the 90402 but that doesn't really impact me. I just want franklin and I can get in to franklin by simply buying a SFR between 10th and 25th South of Montana

The SFR's South of Montana have always traded at a 25% discount to the ones North of Montana, so for me it makes more sense to buy South of Montana.

Do you have any sense as to what the income to mortgage ratio is in my target zone ?

Anonymous said...

How does the price to income ratio work for retired people?

Most of the retired people I know only have income from interest on their savings and with today's low interest rates their income is about zero.

If a neighborhood is filled with retired people like this, what do the income to price ratios look like

Anonymous said...

"Yep, many are just hanging out making the minimum payment until their 5 year option arm loan recasts. They never had the income and never will, except just enough to service that minimum payment. "

Please provide a data quote for the above statement; where did you find the count data on 5 year option arm (and other types) of loans in 90402? Can you provide a complete breakdown of the zip?

If you do not have the data, is your statement out of thin air?

Anonymous said...

I guess you think it's different in 90402. Wake up and smell the coffee. Or, look at foreclosures to go and look at all of the foreclosure and bankruptcy activity.

Anonymous said...

Fact remains... blogger pulls the 're-setting 5 year arm' panic stat out his/her behind... followed by the plaintive 'prices are cratering' statement. Next comment is 'all of the foreclosure and bankruptcy activity' going on.

What next, the BP oil spill washing up on Montana? The only panic and cratering out there is from the cheap bleacher seats; the 'huge crash' game is over, nothing more to see, go home.

Anonymous said...

Previous comment, of course, by a underwater homedebtor or realterd. Look here:

Anonymous said...

Yep, prices are just beginning to fall. It's obvious from the chart how overvalued the market remains.

Anonymous said...

As a regular reader, but not poster, to these discussions, I must say I cringe every time I read "realterd" -- yeah, I get it, clever, fun, etc. -- but its use just strikes me as childish and tends to diminish my regard for the post in which it appears. No, I'm not one of them (just a media industry guy looking to buy somewhere in these parts), but thought I'd provide feedback. Do with it as you will.

Anonymous said...

In June 2009 LS2009 said...

In 2014, we should experience total capitulation

In March 2007, LS2009(8) said...

By the end of the next selling season ( Summer of 2008 ) you will see declines of 45% in Santa Monica off of it's peak in August of 05'

Thats it. Just keep pushing the "inevitable decline" further and further into the future. Soon enough, it will be a decade later, you will still be a renter and will say to yourself, my god, what have I done!!!

Anonymous said...

Incidentally, why dont you get ahead of the trend and rename yourself "Latesummer2021" right now?

Anonymous said...

The doomsayers are pooping their pants everyday about how bad it is and the next big dump. A real positive existence; the attitude must do wonders in working with others and getting ahead in a career.

I think the accurate reality is homeowners and prospective buyers are rolling with the punches, win some lose some. Seriously, walk around the neighborhood and look for the signs of 'panic' like overgrown yards, last ditch yard sales, junk cars, crash pad renters, etc. You won't find it. You will find a lot of contractors working, landscapers, new cars, etc, same as always.

Life in the drivers seat is great; sounds like life on the sidelines is less than great.

Anonymous said...

Look, I respect the bulls and the bears both. This is not the place for us to insult each other

Let's just post listings of specific properties and debate what they will sell for

that is all, no personal insults

Anonymous said...

I agree, the comments are getting emotional. It would be more productive to leave the insults out. It would also be helpful to leave the fact-less scare tactics (buy now or be priced out forever for bulls...or look at all foreclosures for bears) that just get repeated over and over in every thread.

It's clear that the home price thing has become emotional as some bought at high prices, are underwater currently, and are upset and others have been waiting on the sidelines and are upset that prices still aren't where they had hoped they would be after the economy and markets fell off a cliff in late 2008.

Anonymous said...

I like 2:05pm's idea. I think this blog and the comments should try to be informative for the community. Everyone here has different insights and specific factual knowledge. Let's share it and we can all learn from it. I have seen some well articulated points made on this blog and have been disappointed by the lack of response--instead the thoughts are interrupted by inane bull vs bear emotional comments.

Anonymous said...

548 15th. Small, old, one level house. Can a normal family with two parents and two children even live in this house?

Just cleared escrow for 2.2 million

What does this say about lot value right now if something this small sells for 2.2

Anonymous said...

463 17th. Small, old, unrenovated trust sale sold on as-is basis. So pure tear down lot value sold for $1.92m which was, btw, in a multiple bid situation over the listing price of $1.895m.

463 17th is a good but not great location as 17th is a through street and thus much busier in terms of traffic and the location is on the East side of the street and thus does not get the afternoon sun the West side does.

Anonymous said...

1430 Georgina just sold for $2.5m...likely for lot value as well. Smaller older home but 10036 sqft lot.

Anonymous said...

444 10th, dirt and no home sold for $2.5m, 11,250sqft lot with plans but no permit.

Anonymous said...

436 17th - a location with a few negatives - busy street etc sold for 1.9

This suggests to me that a normal lot on 16th street - a normal 7500 square foot lot on the west side of 16th would sell for 2.0 million

Of course there is no proof until you actually see the transaction, but it seems to me that we have bounced back to 2.0 million for a 7500 sq foot lot with no problems

But if I am wrong I want to hear it

Anonymous said...

I would say good 7,500 lots are above $1.8M. My intention was to buy a livable tear in the $1.5M range, with $800k down and a conforming $729k loan. No dice. I will need at least $1.1M down to get in, maybe more. The good news is I am making more than I expected 2 years ago, but am still not willing to take on more than a conforming mortgage. Not a big deal, just what it is.

FWIW, the College streets and SFR's in 90403 have been quiet for the last six months, not a lot of inventory or lower sales comps coming out. What gives?

Anonymous said...

I agree with you 100%
I am very surprised that there have been so few transactions in the 90403 SFR market.

It seems to me that everyone on this board thinks you need to buy North of Montana / 90402 in order to get your kids in to Franklin.

But a SFR in the 90403 also gets your kids in to Franklin

Right now, I think a low quality house in the 90402 Franklin is going to cost me around 2.0 million.

The same low quality house - same exact house - in the 90403 I think will cost me only 1.5

There is much less prestige in the 90403 but I don't care about prestige. I care about schools

Do others agree that the low end houses can be had for 1.5 in the 90403 and 2.0 in the 90402

Anonymous said...

Lots in 90402 are bigger than 90403. That certainly doesn't explain the whole difference and there is certainly a premium for 90402 in addition to lot size...part of it is the prestige, part of it is the nicer tree lined streets, part of it is less traffic, part of it is no apartments/condos (less density, etc), and part of it is access to San Vicente (less traffic).

Anonymous said...

7:30 you are mostly right, but not 100%

I believe that most of the lots between 15th and 17th North of Montana are 7500 square feet.

I also belive that most of the lots between 20th and 26th south of montana are 7500 square feet

I believe that the 7500 sq foot lots between 15th and 17th cost 1.9 million each on average right now
and I believe that the 7500 sq foot lots between 20th and 26th south of montana are about 1.5 million right now

But if anyone has evidence that on average generally speaking I am wrong speak up

Anonymous said...

1:26pm, I think you are too high. I think 2:26pm is probably more accurate in stating the 7500sqft lots without issues are probably about $1.8m in Franklin...possibly a little higher given the scarcity value.

Buyers are willing to pay for larger remodeled older homes right now because (1) there have been almost no lots for sale and the ones that come up are bought all cash in multiple bids over asking and (2) the stricter permit/construction process (vs LA) in Santa Monica can take 2 years and the carrying costs (and actual construction costs) are higher.

Anonymous said...

Per Redfin, only 6 SFRs in Franklin 90403 have sold for less than $2 million since 2010's start. Sale prices ranged from $1,195K (1024 Chelsea, 3/3, 1,775/6,118 sqft lot) to $1,849K (933 Harvard, 3/2, 2,386/7,875 sqft lot). Average sale price: $1,507K; average lot size: 7,590 sqft.

Remember well when past blogs buzzed about NOM/Franklin 7,500sqft lots possibly getting down to $1 million, and similar lots in SOM/NOW Franklin 90403 going for $800K. That was wishful thinking wasn't it?

By the way, SOM/NOW 90403 east of 22nd or 23rd is quite nicely tree-lined with almost all SFRs.

Anonymous said...

12:23 I agree with you.

South of Montana 22nd, 23rd, 24th and 25th are beautiful streets.

For me, one advantage of living on these streets is an easy walk, to take my kids to Franklin in the morning

If I buy on 15th 16th or 17th North of Montana I am looking at a longer walk to Franklin each day. Much longer

So why don't we just say the following - Average true teardown on 15th 16th 17th North of Montana will sell for 1.8 or 1.9 today

Average true teardown on 22nd, 23rd 24th 25th South of Montana will sell for 1.4 or 1.5 today

All figures given above are for 7500 sq foot lots

Overall, apples to apples, we are talking a roughly 400 thousand dollar difference between the two neighborhoods.

Now I don't want to debate whether this 400 thousand premium is worth it or not, but did just want to nail down the numbers

Anonymous said...

7:01am, I agree with your numbers. We are talking about a roughly $400k premium for 90402 vs 90403. I think whether it is worth it or not is an interesting question & discussion for the group. Obviously the premium exists because enough people think it is worth it. The question is why are people paying the premium?

I tend to agree with 7:30pm's reasons as some of the reasons. I do think there is a prestige factor that some of us value and others of us think is worthless (and perhaps exactly the reason not to live in the 90402). I do think that objectively the 90402 is nicer (nicer homes generally, nicer streets, less traffic, etc). However, it clearly is not necessarily $400k nicer. What about re-sale or upside? I'm not sure if I have a view on that at this point so it's a question. It's interesting that, as everyone has pointed out, there has been very little inventory/activity in 90403. I think there is literally one move in ready home in the 20s in 90403 currently.

Anonymous said...

To me it is a no brainer to pay 1.5 on 24th a block south of montana vs paying 1.9 on 16th a block north of montana for exactly the same house

That being said, plenty of people disagree with me.

Anonymous said...

I think the difference is living among apartment/condos vs. all SFR...right?

Anonymous said...

Generally speaking, the 90403 apts/condos are on streets WEST of 22nd. If you want a basically intact SFR atmosphere in 90403, you go EAST into the higher numbered streets and then onto the college-named streets (the cross streets there include Idaho, Washington, California). Tree-lined, calm, walkable, bicycle-rideable, this area of Franklin 90403 is very pleasant although lust for NOM is still understandable.

Now if we want to reflect in that coulda'/woulda'/shoulda' way, how do we now feel about these purchases last year when so many were still waiting for additional drops:

Livable and fixable Franklin 90403 SFR at 1129 Yale: 2/1, 1,154 sqft home/8,500 sqft of valuable, buildable California land, sold 7-13-09 for $1,027K.

Teardown in Franklin 90402 at 720 17th: 1/1, 1,287/7,500 sqft, sold 6-26-09 for $1,400K.

Prior posts here are saying that a 90402 teardown on 7,500 sqft could be around $1,800K now. Mmmm...a nearly 30% increase in 90402 lot value alone in just one year!

And, of course, if SM living is for you but you don't mind a 90403 SFR outside of Franklin but among apartments/condos, then could you have gone wrong by getting:

610 California, 2/1, 1,001/4,996sqft of California land just six blocks from the shore. Sold for $579K, 12-3-09.

Seems like some SM bargain days are over with...but then again, there are the many fine parts of 90405 Sunset Park (especially off and around Pearl above Euclid).

Anonymous said...

610 California 579 thousand dollar sale looks really staggering from here.

That is an easy walk to some nice places on Wilshire - and of course no more than four blocks from the promenade.

Looks like a mighty nice price for that location. Anyone have more insight in to that sale? Was it sold vacant or was it sold with a rent controlled tennant?

ie could I have bought that and lived in it ?

Anonymous said...

1:04pm, no question that 720 17th was a great buy at $1.4m. However, when folks are talking about $1.8m for a lot they are talking about one that isn't right next to Montana and the public library. That being said, there is no question that the discount for that location is not nearly $400k...easily $100k, arguably $200k, possibly $300k. Regardless, $1.4m was a great buy...towards the end of the period where everyone wasn't sure if the world was going to end yet...and very few people were bold enough to think about buying a lot and building.

Anonymous said...

610 California looks to be the best buy in Santa Monica in years. Could probably sell it today for $800k+ easily.

Nanci said...

I've been reading that housing will "double dip." Does anyone know what percentage decline constitutes a "double dip?"