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)$560,000
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!
2 comments:
Judging from my experience (mainly talking to my neighbors, one of whom brokers a lot of condos in our building), this is going to take some time. First, they'll wait six or eight months for it to sell, with a few piddling price drops. Then they'll try to rent it and discover they can't break even there, either. But if they can get a tenant for a couple of years, they're absolutely sure that the market will come back by 2011 or so...after all, that's what the person who brokered this apartment told them, and she's the expert...
The moral of the story should be "don't listen to real estate agents", but they'll keep listening. After all, their broker is the only person telling them what they want to hear.
Note this listing went into escrow in only two weeks, sorry bubblewatcher.
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