Saturday, September 26, 2009

Papercuts in the 90069

We last featured the new-construction condo complex "841 Westmount Townhomes" in a June post, where we wondered if a greater than 40% reduction from original bubble list pricing would be market-clearing.

These are "new" construction only in the sense that some are unsold - from the info I could find, this project started selling in early 2008.

There are 16 total units, all 2+2, 3 level townhomes ranging in size from approx 1200 to 1600 sq ft.

As of June, a real estate broker's blog was indicating that 5 units had been sold, with one pending. I show no public sale records for any units in the building - wonder if they've been leasing them?

And now, we have anther round of minor reductions on 4 of the units - to the tune of 3% or so, bringing some into the low $700 to mid $800k range.

Will this be enough? Next door at 843 Westmount, looks like the "summer selling season" was moderately successful for the "Westmount Oasis", with a 2+3, 1500 sq ft unit selling for $800k in July, and a similarly-sized unit selling for $775k in early Sept.

Anyone seen either or both properties?

Sunday, September 20, 2009

I Got Your Pride of Ownership Right Here ...

8709 Sherwood Dr. (90069)
$572,300 - bank owned
2BR / 1 BA
765 sq ft
Lot Size: 2300 sq ft

Great find in a highly desirable area. This 2 BR/1 BA home is ready for your touches. Bath has been redone. Close to trendy shopping & dining! lInformation herein is not verified by agent. Buyer to verify all information & rely on their findings. Offers must be submitted on CAR form w/pre-approval (NOT pre-qual), copy of earnest money check, proof of funds (if cash offer) & agency disclosure. For guarantee receipt of your offer please check private remarks for fax cover & faxing instructions.

Bank Buyback: 1/13/09 - $588,720

We'll go ahead and make the informed assumption that this is an REO, given the wording in the description. Cause, you know, we wouldn't want to disclose that, or anything ...

In fairness, there was no ubiquitous "pride of ownership" reference in the description. I just always find that phrase hilarious, in a "what-you-mean-to-say is buyers for properties at this level are too poor to afford a real house" kind of way.

Almost $600k. For a 765 sq ft property. With a lot size maybe allowing you to a little more than double the footprint while still having some semblance of a yard (someone can enlighten me on the restrictions on building vertically).

Let's say you doubled the size, at approx $300k/ft construction costs. That's just over $200k, plus permitting, other misc costs, overruns, landscaping, etc. So call it $300k, or around $900k at the current list price.

For comparable purposes, the REO at 8616 Sherwood, a 1400 sq ft new construction, sold for $810k in early June, although it may have had some of the "it was originally listed for over $1mm, it must be a deal" psychology.

Also, 8625 Rugby, just up the street, a 1+1, 884 sq ft SFR, sold for just over $600k in early August.

Tuesday, September 15, 2009

Get the Picture?

I'm feeling a little anal-ytical today, so indulge me - there will be a point, I promise ...

We spend a decent amount of time using words like "bubble", and "rollback", and "funny money" to talk about what happened over the past 7-10 years in the real estate market, and to try and paint some picture of what "normal" price levels should and/or will look like.

Of course, this is anyone's guess, not only based on whether you fall on the bullish or bearish side of things, but also based on nuances like what home affordability should be vs. income or rental levels, when the "bubble" really started, where interest rates will go, etc.

One thing's clear to this blogger ... when you look at examples that illustrate 1) how frothy the market of the 2000-2007 time frame was, 2) how easy the money was during that time period, and 3) what history might dictate, you conclude that we have a ways to go in terms of declines. And no, it's not different this time.

So with that, here's a picture of all three. And yeah, it's a condo, and no one should ever buy a condo, blah, blah blah.

637 N. West Knoll Dr #202 (90069)
2BR / 2BA
1,156 sq ft

Super clean split bedroom style centrally located in WeHo literally steps to Urth Caffe, Le Pain & the fashion district on Melrose. Located on the 2nd flr w/N facing balcony & views of the Hollywood Hills. A generous size kitchen opens to din & liv areas. Bedrooms are suites w/walk-in closets. Plenty of add'l closets as well. Gated prkg with tandem spots, extra storage in garage. Bldg has been extensively remodeled w/new railings & dbl-pain windows. Not a short-sale or foreclosure

Sold: 4/22/05 - $505,000 (95% financing)

Sold: 12/14/04 - $400,300 (4 months, 25% increase)

Sold: 4/88 - $157,000

Clean-looking, OK-sized condo, good stretch of WeHo. "Not a short sale or foreclosure". So it's got that going for it.

In the words of Jules from Pulp Fiction, "allow me to retort":

1. You're trying to get the agent's commission plus a little back off of a 2005 sale, where we're already seeing 2005 rollbacks. And that price was 25% above the price from merely 4 months prior

2. 95% financing on a half-million dollar property. Sounds like a good title for a case study from a finance textbook 10 years from now. Or, the name of one of Angelo Mozilo's boats.

3. At the $560k offer price, the 3x income rule of thumb means someone earning just under $200k "can" afford this. Really? We ain't in 2006 anymore, kids. Despite what the "but the entertainment crowd", "but the SLS Hotel lobby is crowded", etc etc crowd would have you believe, $200k is still a decent amount of money. Ask a laid-off attorney. And oh yeah, it gets you just under 1200 sq ft.

Also pencils out to somewhere in the $2700/mo after-tax ($3300 before) range. Check Craigslist - bet you can find a comparable rental for around $2,000.

4. $157k in 1988 was near-peak pricing for that time, but let's say, for the sake of argument, it was a "normal" level. Here's where today's pricing "should" be with the following annual inflation/appreciation assumptions from 1988:

3% - $290k
4% - $360k
5% - $440k

Draw your own conclusions.

With all that said, let me step back and say that I am, most certainly, a capitalist. I have no issue with sellers listing their properties at a level they think the market will bear, regardless of how delusional I think it may be. Opinions make markets, and if there's a buyer willing to pay a certain price, then that's what the property's worth, damn what I say.

However, recognizing a market that's moved away from you (vs. denial of that) is another important aspect of capitalism - the whole supply and demand thing.

So, if there are no takers at this level, how long will it take the sellers to lower the price? That's of more interest. This isn't a short sale or REO - yet ...

But, who knows, maybe "cash for clunker homes" - above the tax credits, etc - will be the next program. First my car, then my washing machine, now my condo!

Saturday, September 12, 2009

Canary Competition

8917 Dorrington Ave (90048)
2BR / 2BA
1,455 sq ft
Lot Size: 4,000 sq ft

Totally renovated, enchanting Traditional home. Enter long, gated drive to a spacious, bautifully landscaped yard w/tranquil fountain, lovely patio, and room for a pool. Step inside to long gallery entrance w/hardwood flrs, an enormous living toom w/vaulted ceilings and stunning views, and a Chef's kitchen w/great light. 2 bedrooms with 1 3/4 baths that have been immaculately redone. Sophisticated den w/huge walk-in closet. This is a truly magical property. A real gem!

Sold: 8/28/08 - $1,400,000

Sold: 4/20/05 - $1,235,000

Sold: 3/96 - $254,000
Sold: 5/93 - $225,000
Sold: 6/88 - $285,000

A few things here:

1) I'll call this the "competition" canary since it's a relatively similar property to the Cynthia St we just featured. Yes, plenty of arguments either way - this is not Norma Triangle/the vaunted "69" although might be quieter overall, one less BR here, etc. But we do have a couple sales over the past few years, and it's a close enough "comparable" that buyers would probably look at both.

2) Sorry, long time readers know one of my pet peeves (and ok, maybe a little mean-spirited) is listing descriptions with misspellings, etc. I mean, it's a $1.3mm (at least list price) property for Allah's sake, show a little attention to detail. I know that $1mm shacks were commonplace a couple years ago, but we're in or getting to an environment where places like this will be attracting discriminating buyers, not those who thought they could afford a no money down $1mm mortgage with $100k income. (OK - the "realize I'm in La-La-Land moment" - thinking twice about my "discriminating" comment ...) And really, can driveways and hallways be "long" in a 4000 ft lot/1400 ft property?

3) As 'Full Disclosure' commented on the prior post, it would be nice if the dates of renovation were disclosed on properties, but I doubt we'll ever get there. I assume you could pull permits, depending on the extent of the work/if it was done legally as part of your due diligence.

Let's assume this place was renovated within the past 4 years, in which case we're talking a pre-2005 rollback. If the work was done after the 2008 purchase, well, kudos to the sellers for at least starting to recognize the current market and pricing around the 2005 levels.

4) Property records (I refuse to disclose anything "personal" on the blog, so do your own homework if you like) seem to indicate that the owner/seller is an investor who owns a few other buildings in the area, all which were purchased in the past few years, so perhaps there's some pressure to move on this one.

5) I show the 1989 - 1996 time frame sales, not to argue that prices are going back to that level (perma-bears feel free to chime in ...), but to illustrate, once again, that the unwinding after run-ups, like the one in the late 80s/early 90s, can be long and result in nominally the same pricing level, which of course means lower on a real basis assuming any inflation.

Another "Where Are We Now?" Canary

9040 Cynthia St (90069)
3BR / 3BA
1,279 sq ft (?)
Lot Size: 4,500 sq ft

Pristine Country English home situated behind lush privacy hedges, pedestrian gate, and gated driveway. French doors, hardwood floors, updated kitchen/bathrooms and high ceilings. Detached guest studio with gorgeous remodeled bathroom. Flat grassy yard, verdant period landscaping, spacious outdoor patio off of sun filled den complete this charming offering. Seconds from Sunset Strip and Beverly Hills adjacent. Show cold.

Sold: 8/27/02 - $575,000

Sold: 3/16/05 - $921,500

The Redfin/MLS listing didn't show square footage, so the number is from my least favorite site, Zillow, but Zillow's also reporting the house to be a 3+2, so I'm guessing the guest studio with bath mentioned in the description isn't included in the size. So maybe closer to 1500 sq ft?

Anyway, this looks like a nice property with some recent renovation. I would give this a slight location discount since you're on Cynthia a half-block off Doheny, in a mixed residential area (large multi-family building across the street and at the beginning and end of your side of the block).

So, why the "canary" in the title? Much like the birds sent in first to test the quality of air in a mine, it will be interesting to see if and how listings like this, with sales near the beginning and in the thick of of the "bubble" era, will survive.

It's difficult to tell what renovations were done when, but from the info I see, this wasn't a tear-down situation. Same structure with some renovations over time. So an almost doubling in less than 3 years from 2002-2005, and now another 30% on top of the early 2005 price?

Ask 10 people about when the "bubble" started (in other words, what prior price levels we should be looking at for normalcy over the next few years) and you'll get 11 opinions.

Personally, I think we're in for a period where, 5-8 years from now, prices will be nominally the same as they were in the 2004-2005 era, so lower on a real basis including the effects of inflation.

Do I think we'll get back to sub-$600k for a nice SFR like this in a solid area? I'm not that bearish. But could we see a $900k type price tag 5+ years from now? Sure think so.

Tree Falls, Sound Made

Ahhh - it's good to be missed, even if one doesn't have Perez Hilton-level blogging fame (or audience, or hair ...)

Thanks for the messages asking, to put it bluntly, "when the hell are you going to post again"?

Now that I've gotten a bunch of that whole darned work-for-pay thing behind me over the past couple of weeks, back to it ...