Friday, September 11, 2009

Low-end north of Montana (2)

This chart of low-end north of Montana sales on 9th, 10th, 12th, and Euclid Streets, normalized and plotted on the S&P/Case-Shiller, should be familiar. In January I introduced this model and projected, based on Santa Monica Household Income (the pink line), that prices would fall around 33% from the $2,050K peak, to a low-end price of around $1,350K, representing a retrace to 2003 prices.

So far we've seen prices fall over 22% to below $1,600K (i.e. the recent low-end sales at $1,600K are better than tear-downs).

Inventory remains high. I expect once again in 2009 that the spring predictions of economic upturn in the fall will be missed, and another price step down in 2010 will hit or overshoot my prediction.


For a different view of low-end north of Montana prices beyond those four streets, here are all the MLS sales I've recorded since 2006, north of Montana, below $2M. From very few in the previous three years, mostly on busy streets like 7th and 26th, there have been a lot in the first 2/3 of this year. Prices are clearly falling.

Address, bed/bath, sale date, sale price (-% from last list price)

2006
633 7th, 3/2, 12/6/06, $1,410K (-6%)
717 7th, 3/1.75, 6/8/06, $1,540K (-7%)
441 7th, 2/2.5, 8/18/06, $1,580K (-1%)
450 Lincoln, 2/2, 11/9/06, $1,605K (-8%)
620 17th, 2/2, 11/7/06, $1,860K (-7%)

2007
420 7th, 3/2, 12/21/07, $1,452K (+4%)

2008
476 26th, 2/2, 5/28/08, $1,575K (-7%)
420 7th, 2/2, 9/29/08, $1,600K (-6%)
1140 San Vicente, lot, 6/4/08, $1,675K (-12%)
219 23rd, 3/2.5, 4/9/08, $1,880K (-14%)
460 Lincoln, 3/3, 11/21/08, $1,900K (-13%)

2009
720 17th, 1/1, 6/26/09, $1,400K
320 9th, 3/2, 5/20/09, $1,600K (-6%)
415 17th, 3/3, 6/15/09, $1,600K (-11%)
714 Euclid, 4/3, 9/2/09, $1,600K (-6%)
620 22nd, 3/2, 8/19/09, $1,625K (-9%)
210 21st, 3/3, 4/14/09, $1,700K (-8%)
636 16th, 2/2, 8/21/09, $1,700K (-15%)
517 14th, 3/2.75, 4/16/09, $1,775K (-6%)
716 18th, 3/2, 5/29/09, $1,780K (-5%)
409 21st, 2/2, 8/27/09, $1,800K (-18%)
1320 San Vicente, 3/3.5, 4/13/09, $1,980K (-10%)


47 comments:

Anonymous said...

I agree. Price of teardowns is now at 1.5 million North of Montana, with discount for busy streets

Anonymous said...

I see prices bottoming in the $1.3M range for a 7,500 sf lot, with the $100k discount for busy streets. I would normally be more bearish (and stay away from calling a bottom), but the $1.2-$1.3M range is very reachable for big downs with a conforming. Borderline 90402/90403 buyers will tip into 90402 in the low $1.0's and there will be market clearing. It also means 90403 is waaay over-priced and should be in the $900's or so.

Anonymous said...

such arbitrary statemens. Maybe bottom will be $1,000,000 or less for the lots. And with deflation that price will seem like the $2,000,000 lot value of prior years with an across the board adjustment of incomes and asset pricing leading to nearly the same people being able to afford the same areas as before, just at a lower price that feels like a higher price.

Anonymous said...

I agree 100%

what will happen is that the type of people who buy North of Montana will have their incomes cut in half
and the price of houses will be cut in half

So it will still be a stretch for those people to buy North of Montana but they will strain and keep doing it

Same people will buy - just at 1/2 off

Anonymous said...

The story of this year's real estate market is the removal of the North of Montana premium that used to exist.

A skanky teardown between Wilshire and Montana and between 20th and 25th is only a little bit cheaper than the same skanky teardown North of Montana

Look at the prices

Anonymous said...

"what will happen is that the type of people who buy North of Montana will have their incomes cut in half and the price of houses will be cut in half"

Huh? Whose income is getting cut in half? Cash comp is the new king, options and long-term career potential are back burner agreement items.

Bonuses are back as well; after a lean year-end in 2008, my company and ultra-competitive others are accruing bonuses like it is 2005 all over again. Anyone who makes less in 2010 than 2008 deserves a 'L' on their forehead and an apartment in Mar Vista.

Anonymous said...

What businesses have turned really profitable ? What are the industries that are building up these bonuses

Anonymous said...

No one mentioned profitability. :)

The comp is going to retain and recruit 'C' level execs and partners. Middle managers and associates (who can't afford most SM zips) are seeing their bonuses cut or eliminated.

I see a fair number of private comp agreements, and 'C' types are pushing for split guaranteed and performance bonus plans, along with quarterly pay-outs. I also see bonus plans eliminated or performance only pay-outs for non-execs. The pools are smaller, and skewing towards fewer participants who will get pay-outs of 50%-75% of the boom years. Nowhere near a cut-back give 2008, and a great set-up for even larger gains in a recovery (or profitable) period.

Anonymous said...

People keep asking how someone with $600 thousand in income can buy a house for $8 million today, Sep 2009

Here is the best answer I have seen so far

__________

Let's assume that you take home $600 thousand a year - there are certain neighborhoods that you can't buy in - For example, the Mapleton neighborhood just East of Westwood has houses that average $9 million each right now.

Beverly Park is another neighborhood you can't buy in - houses there, post crash, average $16 million (ie they sell for average of 16 million today)

So you ask how is it possible for houses to cost this much.

Well, The first answer is that the rule of thumb is NOT that your house should be 3 times your income. Rather it is that your mortgage should be 3 times your income.

So there are plenty of peopele just like you, with $600 thousand income but who ALSO have a few million to put down.

Look up the rate of wealth transfer - the generation dying right now is the wealthiest in history and plenty of money is being handed down via inheritance.

Another source of wealth is the sale of businesses. You will see a number of doctors moving in to these neighborhoods and you will wonder how they do it - as you know general doctors and pediatricians make very little money on the West Side -

well, if you are a heart surgeon or brain surgeon, you can build up a practice, sell it, cash out a few million and then after selling it still make $600 thousand in income

Assume that a surgeon sold his practice for $8 million and paid capital gains and other taxes. He still has 6 million to put down. He buys a house for 8 million puts 6 down and borrows only 2

His 600 thousand a year income supports the 2 million mortgage quite nicely

My point is, Mr 600 thousand a year that you will see many people with the same income as you buying houses that are 12x their income - that does not indicate excess leverage it just indicates that they are putting a lot down

By the way, the above only applies to today's situation - today no one can get crazy loans of 12 x income.

Back during the bubble you saw people getting loans of 12x income and what I say did not apply

Today, prices in the really nice parts of Los Angeles are way down - so my above comments refer to a person buying today, Sep 2009 not someone that bought during the bubble

By the way, I don't defend the people buying today. I think they are stupid. Most likely their scummy realtors are tricking them in to something dumb. But I am simply trying to explain how they easily afford a 8 million dollar house on a 600k salary

Anonymous said...

the doctor example is so stupid.

The best a physician can get selling his practice is 0.5 x sales......There is no doctor getting 8 million for his practice dumbass

Anonymous said...

Uhh - google surgery center for sale

It is common for surgeons to open outpatient surgery centers, and these do usually get acquired once they are big enough

Again, all the info is available on google

I say again, the surgeons buying are NOT buying with current income. Current income can NOT support houses that are priced this way. They need wealth that has been saved

Anonymous said...

I hate the fact that all these threads dissolve into
'How much money one has to make to afford the big house?'

Then it turns into a bunch of number cruncher nerds who clearly have thought WAY TOO MUCH about how Mr. Jones next door bought his property....

Please...can we keep this on the real estate, what is out there, what has been sold recently.... and not on 'Who can buy this s*!%?' ad nauseum???

Anonymous said...

Actually, I kind of appreciate the explanation of how people can afford these expensive houses, because my spouse and I are totally dumbfounded by the fact that we earn well over $500k a year and cannot afford what we consider a decent house on the Westside. We just went to open houses yesterday and looked at $2m homes. We consider $2m to be a lot of money. But what we saw was crap. What motivates people to spend so much money on a house that is just so-so? If I commit to that huge mortgage payment, I certainly don't want to hear the neighbor's woofers every time they watch a DVD.

Anonymous said...

Oh, you don't understand- merely living on the Westside is a privilege. You know, this is the epicenter. People from all over the world dream of nothing else than a hovel in Santa Monica. And if you don't want to dish out $2mio for an old tract house, your are a LOSER.

And if your sarcasm monitor isn't on: yes, I am as dumfounded as the last poster. Why would anyone spend, say, the $1mio for homes in the Stewart Park area that were talked about earlier on this blog?

Anonymous said...

"Actually, I kind of appreciate the explanation of how people can afford these expensive houses"

I would too, if said explanation had any bearing on reality.

Anonymous said...

"It is common for surgeons to open outpatient surgery centers, and these do usually get acquired once they are big enough"

How many of those surgery centers are sold per year, in the entire Los Angeles County area?

Anonymous said...

"Most likely their scummy realtors are tricking them in to something dumb."

I take offense to this. I don't dispute that Realtors are scumbags, but you are completely ignoring the fact that they are on average dim-witted as well as far less educated than their well-heeled clients who afford the high-end areas. So don't blame the Realtor. Blame the client, who has no patience and wants to pull the trigger too early, and just uses the Realtor to make him feel okay about his ill-considered buy.

Anonymous said...

Seems to me there is lot of 'projection' on this site as to what other people are thinking. I've always thought it was better to ask someone that has actually done something than to make assumptions based on outside perception and personal experience. Just a thought.

Anonymous said...

I agree 100%.

The posters on this blog are not inside the heads of the people buying today. Don't know what the buyers are thinking

Some of the buyers are buying based on their income, and some are buying based on their wealth.

Prices are going down - GRS will be much cheaper in 2010 than in 2009

No one on this blog is going to buy at today's stupid prices

So just enjoy the show

Anonymous said...

6:05PM and 7:29PM have to be the same person

or else we have not one

but two

I repeat

two

idiots who post


in this style

Anonymous said...

It is good to see the renewed posts , Westside Bubble.

I expect that the next year will be as interesting in Santa Monica as the past year.

Thanks for the good work.

francis said...

The straight line looks totally arbitrary, and looks to me that it should have a much flatter curve and wind up around 100.
It's almost a scatter plot, and trying to accurately predict where it goes is subject to error.

Wooster said...

I'm sure that line is fit using a built in excel algorithm, so it' probably not arbitrary. Westside is better than that. That said, because of the few sales that actually occur it's always hard to have reliable analyses. It looks strong enough to me to suggest a strong trend down.

About the comment above where people are projecting. That's pretty true and is the nature of most threads, but all I can offer is to cite the decision process of the one friend I have who has jumped into the Santa Monica housing market in the last two years (others have purchase elsewhere). What could it be? He was pressured by his wife who insisted that you need to own a home before having a baby. I've seen that reason happen a lot. The funny thing about my friend, however, is that he was renting a three bedroom on a nicer street before buying a two bedroom.

Anonymous said...

Its all about not wanting to miss the boat...

Anonymous said...

go to
http://www.takimag.com/article/the_estrogen_recession/

or google Takimag estrogen recession

Your friend's story is very common as the article on Takimag explains

Anonymous said...

"one friend I have who has jumped into the Santa Monica housing market in the last two years (others have purchase elsewhere). What could it be? He was pressured by his wife who insisted that you need to own a home before having a baby"

SO true. More than half of my friends who purchased near the very top were basically either pushed to do so or nagged to death by a spouse (I'm keeping this gender neutral by the way). These are very smart, sophisticated thinkers who definitely know better. Unfortunately, try reasoning with a pea-brained spouse that gets an obsession about "owning" as if that is anything other than paying rent to the bank. No amount of reason can surmount relentless nagging.

Anonymous said...

estrogen recession, that's great stuff. Fortunately I married a real estate developer in a downturn, so I don't get that pressure. Yet.

Anonymous said...

I'm most saddened by my friends who were nagged into buying a mid century vintage apartment with a recent condo map and poorly structured HOA. Those guys are f**ked.

Anonymous said...

Great thread.

First, I am a doc, a surgical subspecialist, and no one is selling a practice for 8m. That would also be a very tall order for an outpatient surgery center. It would have to be very big and no doubt that money would be split between many partners.

But I digress. The whole nagging to buy a house hits a chord. I have been slow playing the whole home search but I am getting hammered by my pregnant wife for it. Crazy

Anonymous said...

There should be a video link in the "estrogen recession" article.

Video is of a realtor teaming up with one spouse to bully and bludgeon the reluctant spouse

Watch the video - there is a lot of truth in it

Anonymous said...

Yeah yeah, all the men who bought 2 years ago are smart and saw the housing bubble from a mile away, but they chose to commit financial suicide because they couldn't listen to their wives any longer.

Then again, we do live on the westside, epicenter of the pansy metrosexual...

Anonymous said...

I loved the estrogen recession article. Very true stuff. Bt give the nagging spouses credit. In Santa Monica, nagging your spouse to buy a house North of Montana has been a huge source of wealth for 40 years. Since 1970, almost everyone that bought N of Montana and held to retirement has made a killing. Plenty of old people there now w 2 million in equity.

Anonymous said...

"Yeah yeah, all the men who bought 2 years ago are smart and saw the housing bubble from a mile away, but they chose to commit financial suicide because they couldn't listen to their wives any longer."

Let me guess--you're not married. Get married, and then lecture us about how it's possible to win when you come home totally spent after spending all day in negotiations and meetings, only to be nagged to death by someone that's been waiting all day for you to hear the latest complaints. If that spouse works, it's actually even worse because they feel even more entitled.

Bottom line is, when one spouse gets the "nesting" feeling, they instinctually think buying is better than renting no matter what, as if it somehow bonds the relationship, and then there is no way to overcome day after day of talking about it and looking at listings.

Thank goodness mine has an uncommon amount of common sense and I've been able to show her very convincingly why we are still just beginning to correct for the Bubble in the Westside. Spouse now understands that we're looking at about 20-30% declines, and we're far better off just renting something really nice as the housing market corrects over the next couple of years.

Anonymous said...

Yes, but don't blame the spouses. They get peer pressure and preseure from their parents etc. It is not like the spouse just picks up this idea out of the blue - it is coming at the spouse from all sides.

Anonymous said...

All this news in the paper about the RE bottom being behind us....I fear it will bring out the folks who were on the fence about buying.....thinking they need to get in to avoid price increases...

damn media

Anonymous said...

"Let me guess--you're not married. Get married, and then lecture us about how it's possible to win when you come home totally spent after spending all day in negotiations and meetings, only to be nagged to death by someone that's been waiting all day for you to hear the latest complaints."

Wrong, I am married, but I am a man, not a weak pansy who caves in under the "pressure" of a little nagging. My wife has been on my a$$ for years to move up, even though we already own a house in SM, but I knew if we bought in 2005 we'd end up 40% underwater and that would lead to a divorce, so I dealt with the nagging.

We just looked at a house two days ago that is a distressed sale, the sellers are going to lose their almost $1 million down payment, and the wife showed up as we were leaving the showing and was beyond pissed. The relitter also told us she's taking a bunch of the fixtures with her- apparently as mementos of the life to which she's become accustomed. I'm so glad I'm a man and not a pansy like that guy who bought in 2005 to appease his wife. Now he's broke and will probably dump the wife or be dumped.

Anonymous said...

I agree with you. Look at the records of the new builds that sold North of Montana in 2005 and 2006. Typical story is, house sold for 4.0 million, the husband and wife put down 800 thousand and borrowed 3.2 million

Today, if they have to sell, they sell the house for 3.0 million. They lose their entire 800 thousand down payment.

I have been watching carefully because I am also getting relentless pressure to move North of Montana, East of 16th. Just need to plug my ears

Anonymous said...

Let the people who think we've hit bottom buy homes. I do not need more competition when we are actually at the bottom. There will be plenty of homes for sale at that time.

Anonymous said...

I can't believe how sexist this thread has become. The real estate bubble like all bubbles was driven by greed and the unrealistic belief that real estate (or some other commodity) will go up and up forever. This belief was held by both men and women. Seriously, do you believe only women bought into the bubble? What about all the CEOs, hedge fund mangers, real estate developers etc. who are mostly if not all male.

This bubble is no different then the tech bubble or even the original tulip bubble---are you telling me that those bubbles were also because women nagged their husbands?

Anonymous said...

I'm not actually blaming the bubble on women. That would be ludicrous. I'm blaming the weakness several of my friends have for their wives' desires for their buying of homes at the peak or from the peak until today. I actually have a female friend who insisted to her husband that they should wait and he insisted back that they must "own property" or else they are just useless renters. Well, they bought a mediocre condo in 90403 in 2007. It goes both ways, but I would guess that when it comes to mistimed buying pressure there is more coming from the soon-to-be-moms than from the soon-to-be-dads.

Anonymous said...

Yes - people are people, most people are subject to the madness of crowds. But all of us know that some people are more sensitive to peer pressure than others

Anonymous said...

Most men are defined by their careers. A certain percentage of women (I'm not saying all or even most) look to something like a fancy home to define them. If that reality makes me a sexist, then so be it.

Anonymous said...

A spouse should dump the other half that prioritzes immediate 'ownership vanity' over the long-term financial security of the relationship.

And, better luck next time around picking someone with a higher level of self-worth and independent thinking.

For those stuck in the rush to buy zone, sorry, but both of you are to blame. Blaming the other partner is a weak play, and is actually more unbecoming to the accuser than the accused.

Anonymous said...

"And, better luck next time around picking someone with a higher level of self-worth and independent thinking."

But what if I like attractive women?

Anonymous said...

"But what if I like attractive women?"

Easy - downgrade their expectations, or be prepared for a perpetually downgraded life :)

Anonymous said...

Good one.

Anonymous said...

Pick wisely my friend, and set the right expectations.

Nothing worse than a lower grade package with high expectations. Makes you want to pull certain beleagured spouses aside and say you take that from THAT?