Tuesday, August 7, 2007

Westside Bubble comments?

War Chest wrote in yesterday's comments,

... one thing I find myself still wanting is more conversation. Sometimes I make snotty, elitist, Santa Monica remarks just to see if a bit more lively discussion will ensue.

... its more of a request for more folks to comment. Or maybe adopting a similar format to piggington where there are multiple open threads going at a time and where people can start new ones whenever?

... focusing pretty much exclusively on the westside is what makes this blog more interesting ...

I don't know if you or anyone else shares this sentiment but I thought I would throw it out there.

I've long appreciated your comments, War Chest, and thought these would be a good start for wider discussion. This blog began with my local inventory statistics, an extension of watching the market for the right time and place to buy. I write about what strikes my fancy: highlight and lowlight properties for sale I happen upon, and the larger narrative of the slowly-bursting bubble.

I figure I'll leave the more general economics to folks like Calculated Risk who do it so well, although note here news that particularly affects our local market. Like hikes in Jumbo interest rates, because about everything on the Westside is Jumbo.

We've grown to over 400 daily visitors, which seems a lot for a new and local site! I appreciate your continued readership, that you must like what I've found interesting to write about.

With that, I'd like to throw it open to you for comments. What do you like? Not like so much? Additions of interest? Would some of you like to contribute guest posts (email to westsidebubble(at)gmail(dot)com)? Do you favor open discussion threads, or continuing to use current posts for that? Other suggestions?

(What is that image?? Soap bubbles in the sun, contrast and hue changed in Photoshop.)


Mikey said...

I value quality over quantity.

Anonymous said...

Another blog I find interesting with a combination of specific housing data as well as general market conditions is irvinehousingblog.com. You may want to look at it for other ideas. But you're doing a great job and we definitely need info that is Westside specific!

Anonymous said...

My wife tells me that she is tired of waiting, and we should buy. I probably can not drag it out too much longer. I can probably rent a super-nice place for $$/month and wait another year... Any thoughts on the timing of this bubble?

Lionel said...

Anon, it's hard to imagine a downside happening as quickly as a year from now, considering that the run-up lasted seven years or so. Plus, the Credit Suisse resrt chart reminds me that a lot of people have to go through a lot of pain before this thing plays out completely, and the chart indicates that resets continue through 2009.

Anonymous said...

Hey anon, just had this conversation with the wife and her sister and mother who (surprise, surprise) are all eager for us to buy. I've held the wife off for the past two years by talking doom and gloom for the West side housing market but it's been SLOOOOOW going.

I'm really planning on trying around February 2008. Hopefully enough FBs will have been wrung out that we can pick up something for a reasonable price. Not sure if I can legitimately use the words "West side" and "Reasonable price" in the same sentence but here goes . . .

Terri said...

As a survivor of the last cycle, I remember lease to buy arrangements being quite popular. Maybe Anon could look into that when making offers in that form essentially, you make a lease arrangement for a fixed amount of time and an offer to exercise later. You might have to search around for a bit to find old-time agents who know how to write these though...

speedingpullet said...

Keep up the good work WB - I for one really appreciate the blog.

Personally, I have had nothing to say about SM for some time, simply because the pirces are too high, for too little.

Until sellers stop trying to get $1.8 million for 'land value only' then Santa Monica simply has no appeal.

In fact, burn me for a heretic, I'm looking at nicer houses, on larger lots, for less money, in the hilly parts of Sherman Oaks, Encino and Tarzana.

If Westside ever comes down to 'affordable' prices (ie 2.5 x what we make a year), then we'll consider buying. Until then, let the sellers ask whatever price they want - they lost me at 'sold 'as is''...

But, that doesn't mean that I don't enjoy coming here and having a looky loo :-)

Mary said...

This blog is great, keep it up! I'd love to see Venice and Culver City highlighted here too, but I'll take what I can get.

Westside Bubble said...

Thanks, everyone, for your comments! On timing, I'm expecting (hoping for) decline to begin this fall, from (1) Option-ARM resets beginning heavily, (2) new loans significantly cut back, (3) a falling stock market reducing affluent buyers' cash, and (4) the annual decline of fall and winter. Look at tired listings in November-January.

Two things to remember from past downturns, though:

(1) They take a few years to play out (like 1990-94, not to mention Japan's decade+). This one could be anything from a 10% correction to a 40% crash, depending on how much of a "perfect storm" you expect.

(2) If driven by restricted credit, will that hurt you too? Will you have enough cash to use a conventional loan, that puts you ahead of many other prospective buyers? Or will there be more seller financing, like in the early 1980s?

I'm all for covering other cities, but just don't know them that well. Smash Monster has done a few Culver City "POS" postings. South Bay Beach Cities does stats up through Venice and Mar Vista, but not property details. Again, guest posts are welcome!

FSD said...

westside bubble -

I appreciate your site and have been lurking for some time. You have an opportunity to be THE forum for LA's westside bubble, especially now that the wave appears to (finally) be hitting here.

I have also been fairly active in the Piggington site. One strength they have is the ability for registered users to generate topics of discussion focused primarily (but not solely) on the SD county region. This also comes at some peril, but it makes for lively discourse.

As things progress here on the westside that type of capability might be the catalyst to develop a critical mass of westside-specific folks here.

For those who wonder what the market will do here on the westside, I would point you to the San Diego market, which is about a year ahead in it's cycle. Pretty interesting to see the wave move from the outer reaches of San Diego county towards towards the shore.

Kind of like what's happened with the Inland Empire, then the Valley and now creeping into the nicer coastal areas (e.g. southbay - MB) and westside (starting with Culver City for example).

war chest said...

Westside, thanks again for your work.

I agree pretty much with everything that others have said. There isn't a whole ton of info or situations to highlight because the decline is so slow moving and because Santa Monica/westside is relatively small and there aren't a ton of listings (go ahead and rejoice bulls, it is true that inventory isn't too bad right now).

I really like the Irvine housing blog because there is a new post every day that is usually showing either a hilariously doomed flip or several properties taking significant losses. However being as how this blog focuses on a smaller area, time is precious, and spectacular declines haven't really happened yet, there are some good reasons why you shouldn't necessarily strive to be a mirror image of that blog.

I really like Piggington because of the conversation threads that get bumped back up to the top of the list every time someone comments. There have been great discussions on there about a wide range of topics.

It is extremely refreshing to find others that rent/own/work, etc in Santa Monica/westside who aren't still thinking prices only go up. Most young people I talk to don't worry about real estate yet...and the little they know is that "property in SM is expensive". Older folks who I talk to tend to look at me as if I am an alien or something when I talk about how prices are doomed. I find it hilarious how defensive people become when the idea of declines comes up. Could they make it any more obvious how overleveraged and underprepared for adversity they are? I know, I know...life would really be terrible if you couldn't HELOC another shiny black Range Rover this year...

I saw that there was a short wooden fence put up on the extra large lot that sold on 22nd...I wonder if a tear down is coming. The dirt on 25th now does not have a realtor sign anymore. Anyone know if it sold? It was asking $1.8 originally I believe. A block north on 25th there is the large spec house just finished that I talked about before. $3.3 for south of Montana, backed up to school, half a block from a busy intersection living.

I think I am going to start tracking condos a bit more in another few months I have already seen the declines start there and I expect them to show a bit more after the recent credit conditions filter through the system.

Thanks for putting up with my blabber mouth

war chest said...

Oh yea, also...

Would one of you realtors who comes here on a regular basis be willing to identify yourself and start posting? I think it would do a lot for everyone if we could have an "insider" here. There are a few very regular posting realtors on Pigginton and they really make the discussions better, they have access to data AND THEY WILL PROBABLY GAIN A LOT OF BUSINESS FROM THE BEARS when they are ready to start buying. As much as some people have issues with realtors, they should be welcomed here because I think it would add value for everyone. Ok now I will shut up

Anonymous said...

Anyone considering not waiting...the slide is just beginning. Look at 1215 7th Ave in Venice. It is an REO that has been dropped from $699 to $594 in just two weeks. The lender finally decided to sell. There will be many more of these types of REO price drops that will force down other prices. Plus, credit just started to tighten. Wait until the biggest loan buyers can qualify for is 2.5X their income (remember the late 1980's?). Prices will fall.

Westside Bubble said...

More good comments!

On multiple discussion threads, I'm not sure that's possible in Blogger software. Anyone know for sure? I could start some open threads by topic, but you'd have to check individually for updates. Although I wonder if Blogger will do a sidebar of current comments, as I've seen on some sites?

On the lot at 933 25th, I have it "Looking for Backup" in mid-June, gone early July, but no sale recorded yet.

Good point about real estate agents. I've gained a lot of respect for "Jim the Realtor" in Carlsbad from his informative and knowledgeable posts. Who'd like to be him on the Westside?

SammoSays? said...

Your blog is excellent, reliable, and well informed. Keep it up. It is a great service.

Although I think SM real estate prices will deteriorate at the margins first (like overbuilt spec props in Sunset Park and zero down condos in So of Montana first), it is likely that the higher priced SM properties will eventually become more volatile, with greater percentage losses.

It will happen, the question is: when?

No one knows. Although some say it is now happening, there is no compelling evidence of a significant decline or extended time on market for single family houses.

The prices in affluent areas hold up particularly well. Look at 470 20th North of Montana . A one year 'flip?'resale now in escrow. I do not know the particulars, ( which would be interesting to know) but probably there is a small nominal gain on the year, or a break -even or small loss after reduced commission.

Why will prices significantly decline (25-45% in real terms over time) in SM? For the reasons that those who read this blog know well: the current prices are very high, pushed higher by mass speculation and loose lending standards, and the fundamentals will not continue to support future buyers at these or greater prices.

No sane person will loan the money at cheap rates without clear documents that support the borrower's future cash flow. Very few buyers have incomes to support $2-3 million loans. Those that do have the money can get better value else where.

The SM properties are in competition with other west side neighborhoods. In comparison, the SM lots are relatively small, the school aren't that good, and many see that it is a bubble inside a bubble.

Right now 90402, No of Montana, the Canyon, and North of San Vicente is very desired by a certain set of affluent, smart, trendy people. It is a cunning, fast crowd who business is often to promote, to master and to manipulate trends. They ruthlessly demand winners. They view a house as an investment first that needs a good return.

When the prices start to fall or stagnate, the trendy aspects work against it. When the house value starts to turn into a downer, the trendy people increasingly and acceleratingly want out. Although this may sound facetious, it is actually an accurate characterization. Why else has it been flooded with McMansions from Hollywood agents, lawyers, and RE speculators? Because it was a perfect storm of desire, easy credit, and focused trendiness.

Everywhere, but particularly in SO CAL, there will always be gamblers and people eager to leverage their chances. Many have been incredibly successful.

But when the values are disconnected from the economics, you have to have more faith than brains to put your own money there. If you put someone else's money ( like most have been doing), perhaps you be able to just go along for whatever rides comes along.

More than enough said.

Keep up the great work.

Westside Bubble said...

Vivid thoughts, Sammosays, thanks! It is a cunning, fast crowd who[se] business is often to promote, to master and to manipulate trends. Whew!

Any ideas on where these trendy people might go next?

Per 470 20th, the County shows a previous sale on 8/29/06 for $2,908K. Current asking was $2,998K, so it's a loss after commission unless bid up. It entered escrow within 3 weeks of listing 7/6/07. Wonder why it was back on the market so soon?

Anonymous said...

"Although I think SM real estate prices will deteriorate at the margins first (like overbuilt spec props in Sunset Park and zero down condos in So of Montana first), it is likely that the higher priced SM properties will eventually become more volatile, with greater percentage losses."

If you're looking for overbuilt spec props in SM, you're looking in the wrong neighborhood. Try beloved No of Montana if you want to see overbuilding to the extreme. I'm sorry but the rich celebs buy in Malibu, Beverly Hills, Bel Aire, etc., not in SM. $4 million for a nice home on a 7500 SF lot is the definition of insanity. North of Montana prices are going to be decimated.

Anonymous said...

My husband and I both read your blog regularly. As a survivor of the last real estate bubble, the husband has had us waiting for the bubble to burst. We simply moved back to SoCal at the "wrong time" and are too financially aware to jump in when we all know what is going to happen.

That said, I do want to comment on the statement "No of Montana, the Canyon, and North of San Vicente is very desired by a certain set of affluent, smart, trendy people. It is a cunning, fast crowd who business is often to promote, to master and to manipulate trends. They ruthlessly demand winners. They view a house as an investment first that needs a good return."

We know all these people- rub shoulders with them every weekend as a matter of fact- they aren't that smart and they aren't that ruthless, unfortunately, they are simply rich and their parents are rich. You can't buy a house on the westside because of the bubble and also because all the people that we know who purchased in NOMO over the last few years had daddy putting down million dollar down payments and/or trusts owned by the family making the morgage payments. You don't need to save for retirement or view a house as an investment when the "Bank of Dad" is paying for your westside lifestyle. I wish this was just andecdotal evidence- you know a sample size of a couple of people- but, it truly is a huge number of people in the Palisades and Santa Monica that fall into the "my family is financing my lifestyle" category.

For this reason, although I am still a bear on the westside market, I am somewhat more tempered than most on the hit that the westside will take.

I love the data and the commentary in this blog- thanks so much!

Anonymous said...

Actually, sammosays, the schools north of Wilshire are all excellent, ranking in the top ten percent decile for all schools in the state and both Lincoln and Roosevelt further ranking in the top ten percent decile against comparable schools statewide. (Franklin is a 9)

In fact, across Santa Monica the schools are generally very good to excellent, especially given the demographics of some of them. (ie kids who start can't speak English or have terrible home lives or are homeless)

One of the reasons Real Estate has held up so well here is that the schools are so good.

People have paid more to be in the SMMUSD School District. Agents should go down on their knees in thanks for the schools creating such a sense that this is a desirable place to live and a real community that over the top prices have begun to seem "normal"

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