House Prices Rolling Back to 2003
How low can you go? We have the first documented 2003 rollback on the Westside. Newly constructed in 2004, this house recently sold 6.6% or $260,000 below its original sale price (8/13/04). This home is obviously not some outlier in a marginal area, and is situated in the heart of the Santa Monica 90402 walk streets. There are plenty of interior pictures to see on Redfin. If this trend continues, could 2004 prices be a losing proposition? Here are the details:
209 Euclid Santa Monica 90402 5+6, Mediterranean 6859 sqft YB 2004 Lot Size 7500 sqft SOLD 4/21/10 for $3,690,000
(Click on photo to enlarge)
At a loss of $260,000 + the commission to sell it, the actual loss is at least $444,000 or 11.2% below what was paid in August of 2004. This represents a solid 2003 price. We aren't even including the $48,000 annual tax bill, along with maintenance and insurance. With losses such as these on 2004 construction in prime areas, what does that say for other areas on the Westside? Even Zillow had it right on this one, with a current estimate of $3,640,000. Interesting enough, Zillow had it pegged at $6,860,000 in January of 2008. I guess they held it bit too long.
If this area did peak in early 2008, and we are only 2 years into the real estate bust, what will the next 2 years bring?
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43 comments:
This is great great news. We are in 2003. I think the vacant lot would sell for 1.5 Today so this proves nice houses are today selling under replacement cost.
No one should pay over 2003 prices
Look, I'm grateful you spend the time to put up this blog. I enjoy reading it and occasionally post. My guess is that you read the other Westside/Santa Monica blogs as well including Santa Monica Distress Monitor. Your blog benefits from the fact that blogger made it more difficult to post as a number of readers have moved over here.
However, what I do disagree with is overstating the facts when you know better. It's your blog so absolutely your right...I just disagree with the misinformation.
Look at the post on April 27, 2010 on Santa Monica Distress Monitor on the same exact property 209 Euclid...again, my guess is that you have. $3.598m is not the real price for the home only the recorded price. $3.69m is the MLS price which reflects a more accurate view of the economics. The question then is given the buyer represented him/herself whether to then "gross" up the $3.69 as Santa Monica Distress Monitor did by some amount to reflect what a non-broker buyer would have paid (unless using Redfin or a broker giving a rebate). Santa Monica Distress Monitor concluded the "adjusted" price to be $3.785m.
I think this reflects the market coming down and I believe the market will continue to soften from here (especially given what has happened in the stock market recently, etc).
However, my opinion (and again it's just my opinion and it's always easier to be in the peanut gallery than the one doing the hard work of putting up a blog) is report the facts and keep it accurate. Otherwise, some of us will start to feel your blog is just a cheerleading section for Bears (if that's what you want then obviously your choice).
Anon 9:49, Thank you for your input. You are absolutely right and I stand corrected. The difference between the MLS price and the Public Records price is a 2.5% commission. The buyer must have represented himself in the transaction and had the commission credited at the close of escrow. I will change the actual selling price to 3.69M and redo the calculations.
Good work!
Here's my question for the bulls-- how many houses have sold in the last 30 days in 90402? We are seeing two examples of dramatic price drops. Where are the examples of gains or even near 06/07 prices?
I don't think you can call the previous property a tear down just because it's small. The same people here shouting about how Europeans and wealthy individuals and other expensive city-dwellers like the area should be willing to acknowledge that perhaps some of them are couples or even families who are used to urban life and think 1200 sqft is a large place to live. I know plenty of people who live in NYC who are wealthy enought to live in prestigious santa monica (can't help snickering here) and raised kids in 1000sqft apartments.
DataQuick has SM 90402 up 65.1% (median $3,269,000) year over year. How, exactly, does this information square with your theory that prices are continuing to go down in SM 90402?
http://www.dqnews.com/Charts/Monthly-Charts/LA-Times-Charts/ZIPLAT.aspx
244 16th Street just closed escrow $3,350,500
This house did not roll back to 2003 - it sold at 2005 prices.
Reason - this house was in the Franklin school district.
Carefully look at all the houses that cleared escrow and you will see a pattern - Franklin school district is relatively healthy compared to non Franklin
Not surprising to see new construction head back to 2003 type pricing. New construction was frothy as far back as 2001, with the main driver being a tear-to-build timeframe of at least 2 years. Buyers wanted instant gratification and got it, and spec builders made out like bandits. A lot of spec junk sold at sky high prices, welcome back to earth.
The better evaluation of rollbacks is raw lot values, which are hanging in there after the initial 25% haircut. I would bet against spec McMansions for a few more years, not so sure about good lots (GRS, etc.) dropping below $1.5M.
From what I understand of recent solds and in escrows, the larger lots 8700sqft+ are basically selling for around $2mish. That is down from a peak of probably $2.4m and reflects late 2004/early 2005 pricing. The recent lots that have come on have gone into escrow very quickly. My guess as to the reason is that per 1:28pm's observation a lot of the spec homes built were built with very poor architecture but were snapped up in the bubble. The real long term buyers who have the nicer homes aren't selling. It's the weaker buyers who were speculators and can't afford to hold long term that are selling. Thus, buyers willing to pay $3m+ are frustrated at the quality of homes for that kind of money and would rather just put in the time to build since at $2m for the dirt they can probably have a 5000sqft home exactly the way they want it for less than $4m.
....My guess as to the reason is that per 1:28pm's observation a lot of the spec homes built were built with very poor architecture but were snapped up in the bubble.
Exactly correct. My wife was tagging along with a wife of a transferred exec in my company, looking at $3M range houses. The buyer has owned tasteful houses in Europe, and is not impressed with the faux sponge painting and 'Venetian plaster' finishes. My wife said she got the look of death from the seller's realtors when she pointed out the +5 year old appliances, over-use of stone finishes, dated fixtures, non-energy efficient windows, no solar, etc. The realtors were saying 'like-new' and 'move-in' but were way off the mark. A high-end buyer would have to spend at least $200-$300k to wipe the spec clean and refresh. Sorry spec sellers, you are selling exactly what you bought - low quality and taste, showing age.
The next two years will bring declines at least as large as the last two years, proabaly larger. To say why is to state the obvious.
I agree that the standard GRS vacant lots (9 thousand sq feet) are selling for 2.0 million
The 7500 sq foot vacant lots in Franklin are selling for 1.7
and the 7500 sq foot vacant lots not in Franklin are selling for 1.6
The premium that buyers pay for franlin is actually pretty small - just 100 thousand on that lot.
Spread out over a 30 year mortgage, that 100 thouand dollars really only costs the buyer about twelve dollars a day.
Let's repeat that - a buyer thinking about a lot in Franklin or a lot outside Franklin is only willing to pay $12 a day extra for the Franklin location.
2:56, I agree with that analysis generally--that the premium is overplayed. My question is are the non-Franklin lots really selling at 1.6m though? I think the Franklin lots are selling at the prices you mention but the non-Franklin lots are only LISTED at those prices.
2:56, I agree with that analysis generally--that the premium is overplayed. My question is are the non-Franklin lots really selling at 1.6m though? I think the Franklin lots are selling at the prices you mention but the non-Franklin lots are only LISTED at those prices.
2:56, I agree with that analysis generally--that the premium is overplayed. My question is are the non-Franklin lots really selling at 1.6m though? I think the Franklin lots are selling at the prices you mention but the non-Franklin lots are only LISTED at those prices.
I am not sure I understand what you are saying.
You are saying that the market clearing price of 7500 sq foot franklin lots is 1.7 but the market clearing price of 7500 sq foot non franklin lots is only 1.55
so you are saying there is a 150 thousand price spread?
be clear
Here is my humble opinion on what is going on...of course I am most likely to be wrong given that I am going out on a limb.
Here are the facts: A lot strong buyers (big downpayments or all cash) have entered the market the last 6-9mths. Very little quality inventory is available--anything of quality at a reasonable price (2004 to early 2005) gets snapped up--and only poor inventory remains (major flaws or wishful pricing at peak or peak+).
My interpretation:
1. I don't think the government incentives play much of a role in the MB market which is primarily $1m+ or even much higher priced homes.
2. I think a lot of the well of buyers are increasingly confident about their future given (1) we are no longer falling off a cliff like in late 08 early 09 and (2) reflation of asset values...e.g. stock market, art, etc.
3. Human psychology makes it hard for sellers to sell at a loss--the only sellers are those that have to (and a lot of the economic forced selling took place in 2009 and was absorbed by the market--that's why prices fell, to clear the market of too much inventory). Thus inventory of quality homes will continue to be low.
4. I think the major risk to home prices at this point is a serious double dip falling off the cliff scenario that causes both #2 and #3 to readjust in a totally dramatic fashion. I think there is definitely risk of this in Europe, Asia, and our own overleveraged economy. However, I do think the US government and other governments will be heavily incentivized to print money to support the economy. I think a lot of sophisticated buyers--especially on the high end have taken this into factor when buying (no that this is an example that happens in real life but just to illustrate the point: If you have $10m in the bank in cash why not buy a $3m home to diversify your assets).
It's hard for a long-term bear like myself to watch this market and think about all of this...there is no question that home prices went way above where they should be in this bubble and intellectually they should have corrected far more than they have. The difference between say this cycle and the early 90's in my opinion (among other differences) is that the government has decided to support those that made the wrong bets because there were too many of them and the whole economy became too levered--rather than liquidating bad banks/S&L's like they did back then with the RTC structure. What is clearly going on here in the US is a direct transfer of wealth from those who saved carefully and avoided clear signs of overexuberance. The problem is that the system is facing so much leverage that there would have been an implosion if the government did not step in with "helicopters of money".
I agree that prices haven't fallen as quickly as they should have due to government intervention, but this has only prolonged the inevitable. I don't think things are that complicated. The stock market is at a low for the year, unemployment remains intractable, taxes on the wealthy are going up in a big way, importantly prices are not in line with rents, etc. The other shoe in the real estate market is dropping now in the LA mid and upper tier markets (i.e., markets starting about $800k today). There will always be people buying on the way down, but prices haven't stablized and are continuing to trend down. That is why many of the more conservative monied persons now feel renting is the smarter way to go. It is much less risky because capital isn't tied up (and there's no real estate commissions to pay on exit), not to mention that renting is clearly financially advantageous in a robust rent versus buy calculation.
All the risk is in buying presently. In a risk aversion environment as we have now, renting is a better option. For now.
Buying is always riskerier due to a lack of mobility that a homeowner has and that a renter doesn't have. For this reason, renters have historically paid a premium for mobility, and ownership was cheaper than renting. This is upside down now.
Once the 'gotta sell' owners cycle through, inventory will be real tight. The old-timers are in like termites, and the bulk of purchasers over the last decade will simply ride it out. The good news for existing (and new) owners is plenty of neighborhood leases available to use during a major remodel. I lived a year in a so-so 4 bedroom townhome in 90403 during my remodel 7 years ago; now I could rent a few doors away for the same money.
I agree - the rental prices have collapsed. Another great argument for renting
Take a look at the really nice 4 bedroom houses in the 90402 for rent
There will always be homeowners that have to sell. There are divorces, deaths, job relocations, retirements, etc. Inventory is tight now because there are still so many delusional homeowners thinking their homes haven't depreciated. And in 90402 these delusional homeowners have more resources to struggle by, so things are more delayed than in other neighborhoods. Once these folks accept reality, which may take a couple of years, they will realize prices are down and aren't recovering. At this point, inventory will return to normal levels. I feel sorry for anyone that bought in the last 5 years because their downpayment is effectively lost and they haven't even paid the exit costs to get out from under the property. Time will tell if I feel sorry for anyone that bought in the last 8 years.
'Time will tell if I feel sorry for anyone that bought in the last 8 years.'
I bought in Sunset Park in 2003 and just appealed for a property tax reduction....and got it reduced 20%...pretty good indication things bought 7 years ago have fallen....
The good news is that you can refinance your loan and even the property tax rate can be changed....we never talk about that on this blog....
When the trial SMO flight path over SP and OP gets approved this summer a lot of owners (and renters) will be mighty pissed off. Tanking property values will follow. A lot of folks who claim the 'noise is not that bad' or the 'flight path is straight out to the ocean' will have to eat their words. For all that is said about 90402 values, SP and OP are taking their own special beat-down, and it is about to get worse.
I collected the info on rents that Latesummer posted a few weeks ago. Well, we got our NOM SFR rent reduced by 9%, after a year in the house. It makes thinking of buying even crazier.
About the Santa Monica airport.
I think there is going to be a heating up of legal activity between the FAA (who controls the airspace) and the City of Santa Monica (who owns the airport).
The FAA is a federal agency and will probably do anything possible NOT to restrict any type of planes in or out of SMO.
The FAA doesn't care about safety,they care about keeping airplanes moving.... they refuse to acknowledge that the airport has too many safety issues to fix being in such a constricted urban area.
I believe the next development agreement between the FAA and the City of SM comes up in 2013....should be interesting to watch if the business jets gets banned. The City is fighting to eliminate them as the runways are too short to accommodate them.
"I believe the next development agreement between the FAA and the City of SM comes up in 2013....should be interesting to watch if the business jets gets banned. The City is fighting to eliminate them as the runways are too short to accommodate them."
Don't bet on it. Recent FAA testimony in other regional hearings mentions lower emission jets that can maneuver in smaller runways. Google up "FAA small airport hearings" to see some of the activity. It is a losing battle; federal access rights trump local activist concerns.
Anyone who thinks jets and buzzing prop planes will go away in 2013, and SP/OP will be quiet, is more delusional than any bull or bear posting on this board.
Housing prices across the United States have fallen considerably since the bubble burst, but the pattern has been far from uniform. Housing prices have held up better in wealthier and more productive regions, with higher concentrations of knowledge, professional and creative work, and high-tech industry as well as higher levels of amenity (measured as working artists and cultural creatives) and openness (measured as greater percentages of immigrants). Housing prices have fallen further in locations with lower incomes and wages to begin with, with blue-collar manufacturing economies, lower levels of skill, and lower levels of amenity and openness. Expect that pattern to continue.
What you're saying is not correct. Actually, quite the opposite is true. The lower end of the housing market has mostly corrected and reached historical norms in terms of wages and rents. Therefore, do not expect continued declines in this market. The mid and higher tier markets have not yet corrected to the same degree, and are not in line with local wages and rents. Expect continued declines in these markets until historical norms are reached.
I know that everyone on this blog can afford 90402, but would appreciate some comments on the below.
I am looking at 3/2 in Mar Vista for 750k. Nothing fancy just the standard house around Venice and McLaughlin. Should I go for it. Prices seems quite reasonable compared to the last few yrs. Thanks.
Go for it....power to the Mar Vista crowd!
BTW, the LA Times is reporting that mortgage rates are DROPPING, even after the government support is pulling out...the opposite of what was supposed to happen....!!
Wrong again Latesummer....
Who cares what the LA Crime says? Everybody knows interest rates are going to rise to finance the huge debt the US gov't is taking on.
And I certainly wouldn't buy that Mar Vista house in this market. It will probably fall $100,000 over the next year. That neighborhood is grossly overvalued. See Dr. Housing Bubble blog for more. Previous post must have been by an underwater homedebtor or a realterd.
Of course buying right now is crazy.
And you don't need to buy in order to have your children in a great school district. Plenty of rentals.
Plenty of people are willing to rent out a nice four bedroom home for less than the mortgage. What I see around Franklin 90402 is a house that costs $2.5 to buy rents for $120 thousand a year
For only $120 thousand you can live in a nice four bedroom home and send all your kids to Franklin. This is a bargain when you look at the cost of private school.
Of course buying right now is crazy.
And you don't need to buy in order to have your children in a great school district. Plenty of rentals.
Plenty of people are willing to rent out a nice four bedroom home for less than the mortgage. What I see around Franklin 90402 is a house that costs $2.5 to buy rents for $120 thousand a year
For only $120 thousand you can live in a nice four bedroom home and send all your kids to Franklin. This is a bargain when you look at the cost of private school.
I am looking at 3/2 in Mar Vista for 750k. Nothing fancy just the standard house around Venice and McLaughlin. Should I go for it. Prices seems quite reasonable compared to the last few yrs. Thanks.
Depends on where. There is Mar Vista Hills which is a nice area. So for $700k Mar Vista Hills would be a good deal. Where they call Mar Vista that's close to Venice and Washington is a slump. Homes there are just sitting cause they want $700k for flipper houses surrounded by crappy neighbors. It's always about the location. We lived in the area for 7 years now and we would not raise our children there.
If you purchase a Westside home today, by the time this downturn finally plays out, you had better be prepared to spend the next 10 years covering the costs(commissions, insurance, taxes and maintenance). If you like the house that much and enjoy the location, than consider it.
Before we hit the 90s steroid bubble, the old rule of thumb was, to hold a property at least 5 years, before selling it to cover your costs. I believe that equation has now changed, with more downside to go, a subsequent flattening out period and the "burned buyer" syndrome, where new buyers will be extremely cautious.
Anon 11:20
I can't afford 90402 either. I have bought and sold many times moving around as well as rented when it made more sense in overvalued markets. What homes have sold for recently is not very relevant, what you want is the ration of renting to buying and the ration of incomes to prices. If it is cheaper to rent and the incomes don't support the prices, only buy if you can either take a price hit or plan not to move for many years. In that case buying is a lifestyle choice.
The last place I lived was a small university town where rentals were full of students and the battles of the stereos. I knew we were already in a bubble in 2003, but I bought anywah because the house was in the best neighborhood there and only cost $257k. I knew I could absorb the loss. I got lucky and the bubble kept blowing so I made money and got out in 2006 when we moved here. In LA there are very nice rentals and a $1 million house that drops is a whole lot more money than I am willing to risk.
At some point we will inflate, but I don't have a crystal ball to tell me when any more than I knew when the bubble would pop. If you have a 10-15 year horizon and want to get settled, go ahead and buy and ride it out. If you have a 2-5 year horizon, rent and reduce your risk.
I am hoping my husband will find work out of state and we can bail on the high taxes and cost of living here. I miss being able to stash away 1/3 of take-home.
Thanks for the advice. I will stay put for now.
Be very very careful when speaking to realtors.
Realtors make their real money by brokering sales. They can make a small commission by brokering rentals, but the rental commission is a small fraction of what they make from a sale
If renting will cost you $7k a month and buying the same house will cost $14k a month the realtor will always always tell you to buy. They will come up with a reason. Use your own brain and do not trust the realtors
I think you also have to take demographic data into account. I lived in WLA and all my neighbors were 50+, I even went to some sad "estate" sales managed by the surviving spouse of a recently deceased homeowner. My generation is considerably less well off than the boomers of Gen X before us and is fewer in #. Look at employment rates of recent college graduates - not a pretty picture and an amplification of what happened to many of us in the early 2000's jobless recovery. In this scenario, lifetime wages are dramatically impacted by joblessness or underemployment in the formative career building phase directly after college. When older people pass away or downsize, there will be an overhang of properties being sold to a generation with a less stable or successful financial profile. To meet demand, prices will have to decline. Let me give you an example. In years past in the tech industry, you worked for 5-10 years in a junior role before you became a project manager and started making the big bucks with stock options. Those project manager roles still exist but the junior positions which would lead to into those jobs have moved to Asia. The younger generation of workers does not have the same ladder to climb, in fact, there is not much of a ladder anymore. Same goes for LA's main industry, entertainment. Due to media consolidation both at a corporate level and in the # of projects(# of films has decreased over time) done each year, the prospects of younger workers reaching high levels in the industry is diminished. There will always be one or two examples of people who defy this trend, but the overall trend has set in. Recent law grads from top 14 schools can't find work, as well as recent top 10 MBA grads. Add to that debt load to finance education with rising cost of living and you have a generation that won't be able to save up to pursue entrepreneurial avenues either.
You can make the argument that some areas are special and they will soak up more money relative to other areas, but there are quite a high # of special areas to choose from - Bev Hills, San Marino, Hollywood Hills, Venice, Malibu, Pac Palisades, Newport Beach, other beach cities, Cheviot Hills, the list goes on and on, and that's just central LA. Are there enough dollars out there for ALL these areas to soak up? I doubt it. If economic prospects in the US are diminished, you can forget about rich foreigners as they tend to want homes in areas that are prospering economically. I can't imagine my Asian relatives wanting a place in CA if it doesn't make financial sense.
2:14pm, the wealth gap has only grown larger since 2008. Now, I believe all real estate is interconnected. However, on a global basis, high-end LA real estate is not valued relatively higher but looks reasonable. We've all been through this discussion before...e.g. from NYC, London, etc point of view high end LA looks cheap.
If ranked as a country, greater LA would be the 15th largest economy by GDP in the world and is the 3rd largest urban area by GDP after NYC and Tokyo.
Traffic patterns have gotten increasingly worse in LA over the last 10-15 years, coupled with a lot of the highest paying jobs migrating over to the westside, I believe you are seeing a shift in real estate values & wealth to the westside.
Now, that does not mean that I think now is the time to buy nor do I think that the bubble values are anywhere near fair value.
I just mention all of this as there is no way I can conceive of westside real estate values falling by 30% like some here on the board are thinking (or wishing?).
2:14pm, if you look at who the homeowners are in the real high end neighborhoods of the westside (90402, Palisades Riveria & Huntington, Brentwood), I think you may be surprised at how many of the residents benefit from substantial inherited wealth.
I used to think it was crazy how expensive LA is given the lack of a wealth creation industry like Internet & Technology in the Bay Area or Finance like NYC. When I started researching the residents I was amazed at how many second, third home owners, how many wealthy heirs, etc there are...
Perhaps LA really is a great combination of the CA weather but yet the urban playground that the idle rich really love.
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