East to West, New Construction is the Best? (Pt. 2)

Our prior post focused on some "ripening" new construction in WeHo West, which is seeing modest price cuts after several months on the market. Today we head east to look at a similar situation, with a building listing units around the same time (May 2009) as the prior example.

Really, there are similar situations throughout Weho, these are just some of the most glaring examples.

925 N. Genesee Ave.

Listed: May 2009
# Units in Building: 4
# Units Sold: 0
Unit Types: 2BR / 2.5BA condos
Unit Sizes: 1900 - 2300 sq ft
Original List Prices: $1,269,000 - $1,299,000
Price Reductions?: Yes, $150-250k/unit


They've gone all-out with the descriptions on these. Each unit has its own name:

#1 - "The Splendid Architectural." A vision of open spaces & hi ceilings w/ intimate levels of purist design, comfort & warmth. The residence features floor-ceiling windows, a front porch w/ street access, glass encased balconies, a wd burning fp, grand closets, wine cooler & remote monitoring for ultimate safety. This exciting architectural is a blank canvas for the passionate at heart. Wired for surround snd, HD TV & satellite. Custom Bauformat Kuchen kitchen & Bosch SS Appl's. Open Sa/Su 1-4pm.

#2 - "The Ultimate Home." Space, space & more space. This magnificent residence provides the ultimate comfort in modern architecture. Formal dining/den, a lrg mezzanine & a lrg priv back yard w/ 40'yard for pet lovers & outdoor enthusiasts. This residence features a large master bedroom with breakfast area and walk-in closets. Safety, large spaces and great outdoors make this residence a great home. Custom German designed Bauformat Kuchen kitchens, Bosch appliances and much more! Open Sa/Su 1-4pm.

#3 - "The Holly Views." The entertainer's dream. A master design in luxury & comfort. Featuring an outdoor gazebo/deck w/ wd flring & breath taking vw of LA - the Hwood sign & downtown to the west side. This dream residence has a 40' balcony facing the Hwood sign above lush green Maple trees. Wired for sound, HD television & satellite is the entertainer~s paradise. Walk from your mstr bdr to the gazebo, be inspired by the magnificent vws. Bosch SS appl's, custom German design kitchen. Open Sa/Su 1-4pm.

#4 - "The Light House." Atop all buildings, this lrg residence is the perfect window to the great CA Sunset. Facing west, this elegant residence feats a lrg wd deck w/ a 270 degree vw of the city. Formal DR, glass stairs & a state of the art German Bauformat Kuchen kitchen complement this spacious residence w/ warm sunlight & amazing vws. A lrg master w/ bfast area overlooking the Hollywood Hills is one of the many features that makes this residence a place for relaxation & inspiration. Open Sa/Su 1-4.

Similar analysis as to the last property we reviewed. The price per square foot is "reasonable" at first glance (high $400s to low $600s), but these are outsized spaces.

That said, the finishings do appear to be very nice, and each unit seems to be designed to be light & bright, which can be a huge attraction vs. many of the tightly laid out, dark condos out there.

However, even with the price reductions off original list (by the way, two of the units' most recent reductions were this weekend, in the amounts of $50-100k; the other two haven't reduced since September), it probably won't be enough to find buyers. Sellers are going to have to realize that the "magic" price point of $1mm equating to "affordable" for a small SFR or large condo (aka glorified apartment) is a thing of the past. Even with rates low, the monthly nut here is huge.

On a related topic, I just had a conversation with a friend about some of our acquaintances who "make a lot of money" but are essentially living paycheck to paycheck.

I'll keep sounding like a broken record here: yes, there are people in LA (as with any city) making a lot of money. Many of them even save some of it, although I think you'll find that most (broad-generalization-with-many-grains-of-truth alert) don't. In times where 0-5% down got you into a place, having no savings mattered little. Now? Properties like this require some real scratch - $200k+ - at the outset. No doubt that severely limits the number of buyers.

East to West, New Construction is the Best?

[Blogger's note: will try to actually follow-through on my plans to post more frequently :-P]

Anecdotally, there just seems to be a deluge of new construction out there. I'll have time to do more actual research this week to put some real numbers around the supply.

Some buildings have cropped up more recently, but today and tomorrow we'll look at two on opposite sides of WeHo that are getting that "old man smell".

Today, representing WeHo West ...

"CYNTHIA HOMES"
(8833 CYNTHIA STREET)

Listed: May 2009
# Units in Building: 5
# Units Sold: 0
Unit Types: 3BR / 2.5BA townhomes
Unit Sizes: 1500 - 2400 sq ft
Original List Prices: $995,000 - $1,995,000
Price Reductions?: Yes, lower-end units


Description: * * * BUILDER'S SPECIAL/SELLER WILL CARRY FIRST * * * 201- $1,145,000 / 202 - $889,500 / 203 - $889,500 / 204 - $1,145,000. PRIME WEST HOLLYWOOD NEW CONSTRUCTION SELLER FINANCING AVAILABLE 3 BR, 2.5 BATH Luxury Town home features Modern Gourmet Kitchen w/ top of the line stainless steel appliances, 3 zone A/C per unit, tile and wood floors throughout, spacious, private balconies, sumptuous baths w/ glass tiles, huge walk-in closets, custom designer finishes. Bldg has rooftop deck. OPEN SUN2-5 tues12-2

These units have been on since May of last year, with the only price reductions being on the two lower-priced units ($100k reductions) last summer and fall. Of course, these were done as a series of modest reductions at the time.

They look like nicely appointed units, but then again, so does most new construction. I think the addition of the new Pavilions on SMB/Robertson help this area a bit, but it was certainly "desirable" before that. Clearly, though, these units are not moving.

Not that we should let numbers get in the way of owning a home, but let's look at our two favorite metrics: "rent vs. own" and "who can afford these"?

RENT VS. OWN: Some very quick math on the lowest-priced units (assume 20% down so you hit conforming, 5% rate, HOA of $350 which may be understated) gets you to a pre-tax number of approx $5k/month. Tax-affect that and you're probably in the $4k range.

A quick look at Craigslist shows upper-end units in WeHo renting in the low to mid $3k range, so one could argue that this isn't far off. However, I'd suggest that the condos being rented on Craigslist, for example, are people trying to bail themselves out from purchases and breaking even on their mortgage, so those rent price asking numbers are artificially high. But let's give benefit of the doubt and say that it's close to a wash.

"WHO CAN AFFORD THESE"?: Again, some back-of-the-envelope math would suggest (30% DTI) that income to support these would be around $200k. Are there people (or couples) making $200k? Absolutely. Would they want to live here? Possibly. You could make this argument fairly easily.

HERE'S THE PROBLEM ... (full disclosure that I have not yet seen these units)

Do many people making $200k have $170k to thrown down for the down payment needed to get these under conforming status? Possibly, although I'd argue that if they did, it would severely cut into their savings (if they care). We always tend to hear about the extremes, and yes, I know there are people both making and saving a lot of money - although in LA, I'd argue it's more of the former, less of the latter. I saw a survey recently that suggested that the average total savings for individuals making over $125k/yr is approximately $40k. Consumer nation, anyone?

But I digress ... on to some other "problems" ...

These are the LOWEST-priced units in the building. As you start to look at the others, priced at $1.15mm or more, the numbers go up significantly. Plus, unless you throw down a chunk of change (see above) you won't hit conforming and rates go up significantly. Again, yes, there are people making $300k+ in WeHo. I know this. Would they choose to live here? Maybe.

The bigger issue ... there's a lot of inventory out there, as we'll see in subsequent posts, and although the next couple will remain focused on the new construction condo market, we'll then compare these to the SFRs on the market.

Setting the Stage

Ah, it's good to be back, and thanks to all of you for the encouraging words. Lots to get caught up on, so let's get right to it ...

To set the stage for our 2010 discussions, there are four macro items that I think bear watching, with enough debate about each to fill more than a few pages of the blog.

I welcome your comments, but won't spend too much time on them here, other than to mention that each should have some impact on market activity going forward. Of course, at some level, they are all inter-related.

1) GOVERNMENT SUPPORT (aka "stabilization" or, if you're cynical, "lack of capital market understanding")

I somewhat agree with a prior comment that the "paltry" tax credit on a new home purchase probably isn't making loads of people rush out to buy who otherwise would have waited, but I do think there's some psychology around it, and you know that REAL-tors are pushing it, so I'm assuming that it's influenced at least a decent percentage of any recent purchases.

With the current "incentives" set to expire in the spring, I think we'll see another price reset as any demand fueled by the tax credits, no mater how small, dries up. I also think sellers (encouraged by REAL-tors) are still holding prices higher based on the hope that tax credits will stimulate additional demand.

At the end of the day, unless we are all going to be wearing brown shirts in a couple of years, supply and demand will still dictate market prices.


2) THE ECONOMY, STUPID

This one's easy ... in any real estate market, there are always buyers, sometimes a lot, sometimes few. I have to believe that there are some "normal course" (expanding family, job relocation, trading up, etc) buyers out there who are waiting to see how 2010 plays out - will they still have their job, will they get a new job, a bonus, raise, etc. With the stock market up significantly from last spring's lows, it seems as though some positive vibes have returned (despite still being significantly below the asset values of a couple years ago), so by mid-year, people may start feeling more comfortable.

And yes, I know, just as with any market cycle, there have been smart and/or lucky people who have made a ton of money recently in outperforming asset classes (gold, etc), but in general, I'm thinking about the masses with their retirement funds, etc in a broad stock market proxy.

3) PASSAGE OF TIME IN PRICE COMPARISONS

A straight behavioral psychology exercise here ... remember in 2007 when you couldn't touch a 2BR shack of a SFR for less than $1.5mm? Then prices dipped and six months later, "holy cow, I can now get that place for $1mm". Seemed like a deal, right? Well, if not now, certainly by mid-year, we'll be a couple years removed from peak pricing, and hopefully all the REAL-tors will stop saying things in their listings like "unit across the hall sold for $100k more 6 months ago!!!", and enough time has passed where buyers are focused not on where the price compares to a year or two ago, but "real" stats, like DTI ratios, rent vs. own figures, etc.


4) OPTION-ARM RESETS

In fairness, I haven't looked at this data recently, although if memory serves, a large chunk of Alt-As are up for reset starting in 2010 through 2012. Point #2 above will certainly have some bearing here, but I think we'll continue to see short sales/foreclosures. The question is, will lenders, if they continue taking on inventory, have to start "dumping" due to some of these other factors?


Obviously, there are additional factors (let me know what I'm missing), but with that as a backdrop, property posts to start this weekend ... stay tuned.

The Wait is (Almost) Over ...

Thanks to everyone for their motivating comments on my last post. Nice to hear that people are reading and enjoying the blog, and as always, I'm open to suggestions.

I'll be starting up again this weekend, and should have a few posts to get things going - lots of new stuff going on out there.

To answer a few questions / respond to some comments from the last post:

1) E-mail address for property/focus suggestions (or other comments) is wehohomes@gmail.com. I thought that showed up on the blog but if not, I'll make sure it's visible.

2) In terms of focus, I plan on keeping it narrow, to WeHo and some WeHo adjacent. That was always my original focus, and it's a bit too time-consuming to look at other areas - although if I see something really interesting, I might stray a little.

3) In terms of "analytical" posting, I do try to provide stats on the properties, but my style is to be more anecdotal in the analysis. I'm a big believer in behavioral finance and the psychology around purchase/sales of assets. I think we're in such an interesting time that things like "market value", "comparable sales", etc may or may not be as relevant. If you'd like to see specific analysis, drop me a line or post a comment.

Keep your eyes open for fresh postings this weekend. As a reminder, as with any blog, you can sign up for RSS feed to stay current on postings.

Thanks again for your support and back to you in a few!