Sunday, September 16, 2007

New low-end north-of-Montana

Three new listings north of Montana were open today:

611 14th St., 3 bed / 1.75 bath, asking $2,198K, listed 8/22/07.
704 15th St., 2 bed / 1 bath, asking $2,295K, listed 9/7/07.
627 Euclid St., 3 bed / 2 bath, asking $2,298K, listed 9/7/07.

They're on the first block north of Montana on adjacent streets. That's good and bad: convenient walking distance but impacted with street parking. All were built 1922-24 on 50 x 150 lots, and should be good indicators of what's happening at the low end of north-of-Montana.

They differ: 704 15th is clearly a tear-down, with sagging floors and no interior fix-up. Comparable recent tear-downs include 507 Euclid, 3 bed / 2.5 bath, closed 6/13/07 for $2,050K, and 342 12th, 2 bed / 1.5 bath, closed 7/25/07 for $2,200K (demo permit posted).

I'd call 627 Euclid the best. The photo shows its back yard, with pool and spa on the left, and garage converted to guest room with bath and tiny kitchen on the right. The house itself is pleasantly fixed up, although its third claimed bedroom appears to have been an enclosed former side porch now a baby's room. Landscaping is lush, and Euclid is quiet.

In the middle is 611 14th. It's livable, fixed up with a lot of wood a few decades ago, but with minimal landscaping and on busy 14th Street.

Added: The neighboring 3 bed / 2 bath house at 703 14th was on the market nearly 8 months last year, finally closing 12/4/06 for $2,150K (5% off its original price). It is a very nicely fixed up and expanded 1-story Spanish.

WarChestSM suggests less demand for high-end houses will impact the low end. That's what happened in the early 1990s. If not developers, how much will potential buyers be impacted by higher rates and tighter qualification for jumbo loans, not to mention if they have to sell another house to buy here? I'll be watching these closely.

44 comments:

WarChestSM said...

I went to 611 14th today. In the booming times of yesteryear it would have been a tear down and thats it...

But it had pretty nice curb appeal. Good grass, some minimal landscaping, new paint, etc.

The place was small and the layout a bit odd but it was definitely very livable. The original bathrooms made me really think "tear down" but I think what this place is trying to do is sell to someone who wants to "get in" and who will live in the house for a few years while saving money for the remodel/teardown.

I overheard the agent say something to the effect of "Its VERY well priced if you ask me"

Anonymous said...

You would have to be INSANE to pay that kind of money for a tear down.

But that's the definition of insanity.

And this bubble is completely insane.

Anonymous said...

The American Dream, spend $2 million on an old house and have 6000 SF monsters on either side of you.

vilmosz said...

Great catches and comments, westside. I posted the previous sales info on these properties on my blog. warchestsm: thanks for the priceless realtor quote. I have to say, their unflagging optimism is simultaneously chilling and admirable.

Anonymous said...

611 14th is on the LA assessor role at $120,000.

704 15th is on the LA assessor role at $115,000.

627 Euclid is on the LA assessor role at $1,500,000.

I hope folks do some research on these properties before taking the plunge. I am making a bold prediction that these properties will never sell for those prices.

At least the first 2 can take the hit depending on the debt.

Anonymous said...

what does that mean - "on the assessor role"??

thanks

Anonymous said...

Ummm... Pretty good curb appeal? layout a bit odd? $2M????????

I know people have lost all sense of reality here. This is a joke. How many people can really afford a $2M house and want to live in a small 3 bedroom house?

Outside of an insane bubble, how could it possibly make sesne to tear it [applies equally to any of these] down ?

Let's see...
a year of haggling with the SM gov't... a year of construction... My guess is that would amount to at least a carrying cost of say $300K for the 2 years. Add a 3000 sq. ft. house at $3-400 a sq. ft.: another $900K-1.2M.

So, a buyer would be in by about $2.3M + 0.3M + 0.9M = $3.5M.

Hmmmm. Anyone who really feels comfortable that the completed house will be worth more than $3.5M in 2 years, is smoking something other than tobacco.

What is it really worth? While I think it is really worth about $500K, I think similar houses will be sold for under $1M about 3 years from now.

This should be the house of a young professional, maybe a dual income couple. It was only a few years ago that pricing for such a house below a million seemed normal to people. The world really hasn't changed so much as to make it worth anywhere close to the asking price.

Sorry to rant. I know this is nothing new. It just amazes me that anyone who might have amassed enough money to buy one of these could really believe it is a good deal.

WarChestSM said...

ranting anon,

I fully agree with you. You can actually bump up those carrying costs and construction costs a bit too. Many of the "tear downs" are the cocoons for the 5,000 square foot butterflies that emerge 2-3 years later.

When making hundreds of thousands of dollars on spec homes and remodels is no longer a slam dunk, I think that "land values" and "tear downs" get adjusted down. I think that time is starting now. I went to high end open houses the past 2 weekends and everything had big reductions. The listing sheets at the open houses had the listing prices scratched out and a new "reduced" price was written in. The signs on the corners advertising the open houses had "REDUCED!!" written in red on them. The tide has turned.

Anonymous said...

It is all relative. Prices in Europe London, Paris (or even Bombay India) are much higher than that. Try a 1000 square feet or less condo in prime areas of these cities for equivalent of 2mln$+, no land. Average salaries are not higher than here - mostly lower and there is no favourable tax laws for the mortgage deduction like in US. LA is a famous big international city and there are only few exclusive zip codes here including 90402, 90210-2 90049, 90024 etc. Not too many in the 10 million +city. There are only 20-30 or so houses for sale in 90402. Don't hold your breath for these prices to come down too easily. I have seen the same gloomy predictions on the Internet in 2001. $ is down 50% since then and many people come here from abroad - 2007 prices are very reasonable for Europeans and others. It is close to 2001 prices for the foreign capital. Typical uppper-middle class LA families 200k+ (dual income) and there is many of them here will be easily priced out since there is only a few properties in the key desirable places, so you need to have much higher income to compete. Unfortunately high-end areas of big metropolitan areas are rarely afordable and this is how it has been for decades in the world. I don't see why this should suddenly change now.

Cheers

Don said...

I'm sorry, I STILL don't buy the "rich foreigners are going to save the market" claim.

Anonymous said...

It is not the rich foreigners. It is just that LA is not that different than London, Paris, Moscow, Bombay etc and it is actually a bit of a baragain still compared to these cities. In large cosmopolitan cities high-end areas are usually beyond the reach of "local" average Joes. or even better-than-average Joes.

not giving a shyte said...

Ya know what, anon. You're probably right. Foreigners, the super-rich, people who make $200k incomes look like peanuts; I don't care anymore. Just take the whole effin' place already. Seal it in wax, roll it into a ball, mark it up, cut it down, rebuild, expand, rezone, enhance, paint it, pucker it, and plaster it on a billboard. All things considered, I'd rather be in Philadelphia at this point.

WarChestSM said...

anon,

My post is in good spirits but you gave yourself away with "favourable"...I spent a year in London and spelling like that brings me back (not to London in particular but to "the other side of the pond")...

Anyways, I have 2 points.

1. LA was a "world city" back in the early-mid 90s and prices declined significantly back then in 90402.

2. Have you seen the price cuts going on in 90402 on the highest end properties? I did a post a while back on my blog but I will summarize.

239 14th - Reduced from $4.5 to $4.0
202 14th - Reduced from $3.86 to $3.29

Others include 557 12th, 713 22nd, 333 14th (due for another cut soon), 230 21st place...

I agree that the currency issue helps for foreigners but still...I don't think that this "world city" demand alone will keep 90402 afloat. As has been suggested here many times, the really really rich folks likely want much bigger lots (think private compound...can't have that on 7500sq ft NOM), ocean views, cliff side estates, etc...

LA is very different from these other major capitals because LA is made up of sprawl...and no public transport. When you have high density and public transport in a major urban hub, then you get the London pricing...LA really is different!

Anonymous said...

All true.

Price cuts are just adjustments of the unresonable (at this point in time) initial prices. It does not mean anything. In my opinion without public transport it is even more important to live close to where you have lots of good jobs(Westside). BTW in LA there ain't any big lots in big quantities so modestly "rich" say 300-400k +income families (not really rich but in top couple of percentiles in LA still many here) just can't have these huge lots and views (unless they bought long time ago) or they buy in the mountains but then there are other problems -sloping yards mud slides, canyon commutes, coyotes - not good for children, brush fires etc. The modestly rich can move out or they can stay and put up with smaller lots. Many of them are staying here - many have Westside jobs MDs, lawyers these are not "rich" people. They need to be in LA for professional reasons. They all make incomes mentioned above and much more in dual income families.

In London prices also declined 20-30% or so at some point so what - look where they are now - they are ripples in the market of course, like now but the inherent demand is there and 2mln $ is not that unreasonable by world standards. There are a lot of people in London for example who would much prefer to live in LA for various reasons -one being able to afford a decent standalone house close to the ocean.

Just putting it all in a wider world perspective.

Anonymous said...

Anyone who thinks prices won't fall immediately reveals themselves to be an ignorant fool. Prices fell in the early '90s in these areas and in a stronger economy (pricing far more in line with fundamentals).

And anyone who thinks LA is a world class city on par with London, Tokyo, Paris and so on has clearly never traveled. LA contributes nothing to global culture beyond Hollywood and guess what, Hollywood couldn't stop previous price drops either.

The proclamations may be false, but the evident panic still tastes great!

Anonymous said...

The idea that $2 million is normal globally ranks right up there with fuzzy math and Intelligent Design. Hilarious!

dwr said...

"There are a lot of people in London for example who would much prefer to live in LA for various reasons -one being able to afford a decent standalone house close to the ocean."

Do you know any Londoners who actually moved to LA and bought a $2MM+ home?

just resting said...

I didn't see the trend of foreign buyers roling in and buying up home in SM, however, I actualy do know a few families from UK that relocated here and wanted to be in Franklin SD, so they ended up buing it.

dwr, you keep avoiding my simple question from the other posts, what is your profession? It is not a trick question, so stop avoiding it and do what you preach -- be honesty.

dwr said...

I work at McDonald's and am worried about my career due to increasing competition from out-of-work real estate clerks and mortgage brokers.

Anonymous said...

dwr - you shouldn't be comenting on this or any blog and stick to your day job - flipping burgers. Don't be concerned about us, realtors, we made so much money, that we can go without working for at least next decade.

dwr said...

Sure you can, just like in the 90s when half of you went BK. It's not how much you made, it's how much you kept, and we all know your collective track record in that regard.

Anonymous said...

I have been a real estate agent for 24 years. Prices will fall. Any REA who claims otherwise is either deluded or still wet behind the ears and has only experienced a boom period. We really don't have to go that far back to see significant price declines in the Westside. The naysayers are revealing their youth and inexperience.

speedingpullet said...

As a Londoner, who moved to L.A, I feel slightly qualified to comment.

During the 89-90 housing crash, London prices dropped by about 50% - it happened then, it will happen now. With the likes of Northen Rock imploding, the chances are that London has reached the height of its prices, and can only go down from here.

As for London prices being 'much higher than [L.A] that'...they're not. There are still many many places well under $1 million (about 550 GBP), and even Londoners would balk at paying a million quid for a 'tear down'.

2 million would buy you a complete Edwardian villa overlooking Blackheath or Hampstead...hardly a pokey little, pre-war bungalow with questionable structural integrity...

And, as for rich Londoners bailing out the housing industry in Los Angeles, the large majoirity of them have oher fish to fry, trying to keep thier heads above water in the Florida condo market.

So, sorry, trying to justify the price by laying the responsibility to buy it on 'rich foreigners' is just silly - that place is wildly overpriced by pretty much all definitions, worldwide.

Anonymous said...

Ad to be placed in foreign magazines:

Welcome wealthy foreigners! Come buy up lots of little houses in South LA. What a steal! Great weather. Diverse culture! Close to the beach. Easy freeway access. Close to the amazing jobs you don't need.

Los Angeles is so wonderful, you just have to buy here. Soon prices will be over $2M in Compton. Buy now or be priced out forever! We know you are super-rich, but the super-super rich have already bought all of Santa Monica, Bel Air, Pacific Palisades, Malibu, San Marino, Palos Verde, Hollywood Hills and Hancock Park. You'll have to get into Compton fast before it too is snapped up.

Anonymous said...

"Sure you can, just like in the 90s when"

I agree with you 100% about the part of how much one keeps, can't argue there. Still, if I were you, I wouldn't wory about any realtors. Their demise or survival will not have any impact on you. You can proudly continue flipping burgers.

Somehow, I have a huge doubt about you flipping burgers and am curious, what can one possibly do for a living to be so ashamed and hide it so intensly? I have a feeling that you are one of those "loser" realtors that didn't make any money in a good market and now is facing the demise.

Anonymous said...

Seems like it has generated quite a bit of discussion - the world angle. Thanks for the interesting opinions.

The UK prices in posh areas W1 for example are
here:

http://www.findaproperty.com/areadetails.aspx?edid=00&salerent=0&areaid=0207

Check for yourself
2$=1pound (for now maybe it will be 3 soon)

Each city has pluses and minuses its Comptons London too. Average middle class or better will never buy in these areas (plenty of these areas in LA) and hence the squeeze in very few high-end area of LA and SM north of Montana is undoubtely one of them in LA.

BTW Moscow and Bombay are even less of world class cities I would say in my opinion and yet the RE squeeze is very strong there.

Maybe there will be a world wide depression and things will change for a while- but this doom and gloom has been predicted for decades by now. Some price adjustments/stagnation may happen for a while given the scary mood in the media especially in bad areas but I doubt it will be that big. Not everyone buyng is a flipper-people have families and have to live somewhere. Apartments are not a long term option for families in US typically so people are not going to wait 15 years for prices to adjust.

Anyway gotta go - make some $$$ or better pounds euros or rupees So keep up the discussion. Thanks for your comments.

Anonymous said...

I always laugh at the bulls on these threads. Prices are so divorced from fundamentals that any effort to reference historical norms as an excuse for the runaway costs of the past few years (for example the previous post) has me rolling on the floor with laughter.

Keep feeding those alligators!

Anonymous said...

"Not everyone is a flipper"

...but prices are set in the margins and the last comp marks the neighborhood. Falling prices will hit the Westside last but it will hit all the same. Just like the '90s. You kids need to open a history book and stop embarrassing yourselves.

dwr said...

"Somehow, I have a huge doubt about you flipping burgers and am curious, what can one possibly do for a living to be so ashamed and hide it so intensly?"

Boy are you ever a smart one- sure you're a realtor?

I have posted on various bubble blogs with this moniker for 3+ years, over those years I have given out too much personal information already, and prefer to remain anonymous, thankyouverymuch.

dwr said...

"Still, if I were you, I wouldn't wory about any realtors."

Not sure I ever used the word "worry", more like schadenfreude.

Anonymous said...

Just one example of current London pricing to ponder over. Now I am really going :-)

http://www.findaproperty.com/displayprop.aspx?edid=00&salerent=0&pid=120381&agentid=01803

Approx (1.45 mln pounds) approx 2.91 mln $ A house 1524 square feet house (including garage)-actually by US standards-townhouse no lot -prime area. Pretty nice ? Just look at the pictures. How does this compare to low-end Santa Monica north of Montana. Where would you rather live, assuming you could have similar or better paid job here (still better despite sagging $) as an upscale professional ?? Sell that shack and move over here, no -does not sound too bad here after all -? and then there is the beach

speedingpullet said...

W1 has always been insanely expensive - plus, its rare to find places that have a freehold. Its been the bastion of the Upper Classes pied-a-terre's for well over a century.

The vast majority of W1 is owned lock-stock-and-barrell by the Duchy of Westminster, Morden College and the Peabody Trust. They never sell, so the best you'll get is a lifetime (99 year) lease. Yes, there is some ex-Council housing, but you won't find any of that in Fitzrovia.

The vast majoirty of real estate in W1 is commercial - judging from the listings you posted, they're still pretty good value - less that $100K in Soho is doable - even then, as most of Soho is own and operated by Peachy Property (hawk, spit), they'll still get you to take a 99-year leasehold rather than a freehold.

Comparing the north of Montana teardown to a Mews house in Fitzrovia is disingenous at best - try comparing it to Manhattan or the most affluent parts of Washington D.C for a proper comparison. Plus, you can bet that that Mews House will be in much better conditon than that sad little place in SM.
Horses for courses, mate, horses for courses.... ;-)

And, yes the beach is nice, but you're still going to have to get in the car to get to a decent beach. And completely renovate the property, as its still a teardown for $2 million.

Anonymous said...

You are right - Mews houses: carriage house on the ground floor (garage), and stable servants' living accommodation above for over 2.9 mln$.
subtract garage and you will get 3000+per square foot.

I don't think this would sell for 1 mln even in SM North of Montana or prime Beverly Hills. So if you think it is insane here - how much more insane is that in comparison? 3X?

You have explained logically in your post above why RE prices in top high-end prime areas in top cities do not need to be related at all to income of average or much better than average folks.

Is prime London better than prime LA ? Grass is always greener on the other side. Many people would love to move out of London, just like they want to move out from LA.


Cheers

Anonymous said...

It's true that premium locations will command premium pricing with no relation to fundamentals. Where the problem starts is the mass delusion that much of the Westside is one of those locations. It's really not and the number of true premium spots in LA is much smaller than a lot of us like to think. Of course, we always think "our" little slice is one of them. Delusion is easy when money is involved.

just resting said...

"moniker for 3+ years, over those years I have given out too much personal information already, and prefer to remain anonymous, thankyouverymuch."

I understand. In your shoes, I would want to hide too. But how does ones profession reveal ones identity? I am not asking what is your name, or where do you live or which floor of the building do you work.

Excuses are like assholes, everyone has one and they all stink -- do what you preach. So, what is your profession?

Anonymous said...

Leave the stalking offline.

Anonymous said...

same with bashing.

Westside Bubble said...

Hey guys, keep it civil, ok?

Anonymous said...

I respect very much all of the above comments.

Let me add my 2 cents

I think we can all agree that there is a global group - a group of people with a net worth over $100 million US dollars.

Members of this group can easily pay $5 million for a third home.

If somehow 90402 became popular with this group, there would be eager demand for hundreds and hundreds of houses at the $5 million level in 90402.

You could look at the meat packing district in NYC - a few years ago this was the domain of transvestite hookers and wholesale butchers. The sidewalks were literally soaking in blood and animal by-products. family-sized apartments could be purchased for a few hundred thousand dollars.

The neighborhood suddenly became popular with the global elite and now family-sized apartments cost $5 million in the meat-packing distict. Visit Manhattan. This is a true story. And it happend pretty quickly.

Who could have predicted this change? Not me. It just sort of happened.

What could cause this to happen in 90402? Let me just throw out some ideas. Let's say one of the Russian Oligarchs builds a property in 90402 and invites all the other oligarchs to a party - the Russian media picks up on 90402 as the next hot area for Russian Oligarchs. Right there you could see demand for hundreds of houses in 90402 from the oligarchs and their hangers on.

Sounds far fetched? Well if i had told you in 1978 that Beverly hills was about to be flooded with wealthy Persians, that would have also sounded far fetched.

My point is that it is *possible* for 90402 prices to explode upward.

It is of course much much more likely for them to collapse.

It all depends on how fashionable the neighborhood is perceived to be by those who think nothing of spending $5 million on a house. In most neighborhoods in most cities house prices are related to household incomes. But for the neighborhoods that are fashionable among the population with a net worth over $100 million, all the rules go out the window. Prices go through the roof. Often the owners of the houses only use them a few weeks a year. Owning the house is a fashion statement, a status symbol. I do not mean to disparage any ethnic group, and i do not mean to denigrate or to praise people who have this much money. I am trying to be neutral and honest.

I am *not* making a bet either way, I am simply saying that the future is hard to predict.

90402 could become a place where the super-rich own houses and keep those houses empty for the same silly reason they own apartments in London that they keep empty. Or not. Who can honestly say they know for sure?

Anonymous said...

"I respect very much all of the above comments.

Let me add my 2 cents"

Perfect. Their are many movie stars that own properties in SM north of Wilshire.

Anonymous said...

"The rich foreigners will save us" line never gets old.

Anonymous said...

"line never gets old."

ignorance is a bliss.

Anonymous said...

Everyone here is struggling to figure out if prices in SM will fall the way they did in the 90's. Rational thinking (mean-reversion, analysis of past trends, etc.) as well as breathless emotion (if prices don't fall, SM can only be enclave of superwealth!) would comfort us that prices MUST fall.

However, what will make prices fall? At the margin, a seller needs to sell desperately, and all potential buyers need to not be able to afford the inflated market prices (or, perhaps more importantly, do not want to pay the inflated prices relative to the percieved value of the property).

As someone has pointed out, there are so few available properties in SM. What will cause greater volume, and as a result, greater chance for price decreases?

-- ARM Adjustment (if buyers of 2-4 Million dollar homes were stupid enough to use 2/28s or some other form of toxic loan)

-- Baby Boomers downsizing, cashing out equity

-- Major general economic recession that affects even the "working rich" who have bought in SM during the bubble.

So the question becomes, going forward, who are the sellers of SM homes, and who are the buyers?

If the sellers are ARM-resetting over-levered bubble buyers with less than 20% equity, and/or spec builders carrying some serious recourse loans, then we may see some significant volume.

However, if there are a lot of truly wealthy buyers who will do anything to get a SM tear-down, then prices won't go down much. But if the market is "working affluent" people who make $300 to $500 K a year, then prices may come down due to real underwriting and higher long interest rates.

One point has been made that is, unfortunately irrefutable for us who have grown up in SM: it has become an enclave of (relative) affluence over the last 20 years after being a nice middle class community for most of its history.

Karen said...

Hi--I am a former westsider who sold in 8/2006 and now is looking to buy in South Pasadena. It doesn't seem as if the bubble has hit South Pasadena yet. Any thoughts onhistorically how South Pasadena/SGV has followed sales trends of the westside? Thanks, Karen