WestsideREMeltdown blog

Another blog joined the Westside bubble party at westsideremeltdown.blogspot.com. Welcome! (Thanks, Craig)

Falling 2

Westside prices have been pretty flat the last two years. I've called it a stalemate. For his Carlsbad area Jim the Realtor calls it:

"The Big Freeze-Up is what's happening now. Elements include: 1. Sellers are holding back. ... 2. Buyers are holding back - waiting for lower prices. ..."

We bubble watchers see it as teetering, with demand tapped out, waiting to tip down. Now we're watching it happen.

The demand side is falling from the implosion of subprime lenders. Expansion to Alt-A and prime and a stalling larger economy are next.

Bill Fleckenstein's current summary is subtitled, "As a result of the collapse of the subprime mortgage market, lenders will -- gasp! -- once again require down payments, filling the market with unsold homes and driving down prices."

Lack of first-time buyers then hits the mostly move-up Westside market. Calculated Risk's The Subprime Chain Reaction is an apt illustration.

So far on the supply side inventory has risen, but not on the Westside like unsold builder inventory elsewhere. Rising foreclosures are the other shoe to drop, as happened in 1990-94.

Which is why we need to watch and weigh in on Senator Christoper Dodd's potential legislation: is it really a bailout of lenders at taxpayer expense that would slow the market from returning to normal?

Marketplace gave a good summary Wednesday:

"Dodd, who is seeking his party's 2008 nomination for the White House, said in a statement on Tuesday that he was mulling legislation and other options that would protect consumers from abusive lending practices and allow them to keep their homes."

Bearmaster is very concerned:

"A massive Socialist bailout for subprime borrowers is being cooked up in Congress right now. The very thought of it makes me sick. Now is the time to let Congress know exactly what you think."
________________

More from the LA Times this morning, "Clinton: Industry 'clearly broken'". A key quote:

"As this crisis worsens, mortgage tsunamis will ravage working-class neighborhoods across the country," warned John Taylor, president of the National Community Reinvestment Coalition. "Sheriffs will be knocking on people's doors only to find keys and furniture left behind."

Taylor called for legislation to create a national rescue fund to support beleaguered borrowers and stricter standards to eliminate predatory lending.

Allowing borrowers to refinance under easier terms "is the most sensible way for Congress and the administration to deal with this problem," ....

What would those "easier terms" be, if borrowers can't afford anything but below market rates and/or negative amortization?

Pacific

Here begins a new series - The Ancient Listings of Santa Monica.

This is the third-oldest, 324 days. OC Renter highlighted its 3-flip history last November 28. Originally listed for $819K, this 2 bedroom, 1.75 bath on Pacific is also the cheapest house in Santa Monica, asking $699K.

It claims "Lovely move in condition Bungalow, west of Lincoln. Hardwood floors, Ceasarstone countertops, copper plumbing, updated electrical. Zoned C4! Excellent investment opportunity or great for first time buyers. Close to beach and shopping..."

Yup, it's one whole lot west of Lincoln, bumping against the corner liquor store and its sidewalk dumpsters. Certainly is close to shopping, if you need a 6-pack! But no first-time buyers have found it great so far.

Traffic

Traffic gridlock probably supports Westside house prices: pay to live here or suffer the horror of commuting to Santa Monica or West L.A.

If you want to rant or do something about it, here are two resources:

** The LA Times Bottleneck Blog.

** The planned Expo Line light rail line from downtown to Santa Monica is holding its last "scoping" meeting tomorrow evening. See its supporters' website at friends4expo.org for more info.

Warwick

[See updates at bottom]

Our first Spotlight shines on 18x7 Warwick Ave., Santa Monica. Listed in 8/06, it was slightly reduced in November to its current $869,000.

Let's savor parts of its MLS description:

"The Best Deal in Santa Monica!"

Local comps in the last year sold for about $100,000 less (3344 Delaware Ave., 3008 Delaware Ave., and 1912 Warwick Ave.) per the L.A. County Assessor's Office.

"Wonderful 3br 1ba Home on a quiet, tree-lined street."

It's one block from the Santa Monica Freeway (to the right). Enough said about the "quiet".

"The home is in move-in condition and is just waiting for your personal touches."

You've got a lot of "personal touches" ahead of you, beginning with replacing that security screen door.

"Open Every Sunday 2-5!"

For many weeks to come, at that price. Why do they write stuff that someone visiting quickly finds otherwise? It just wastes everyone's time.
___________________

This is off the MLS as of today (3/2), and the sign is gone. Relisting soon?

Meanwhile, two neighboring houses are new on the market, on 34th for $899K and Virginia for $849K. The latter's description - "Must see!" - somehow doesn't mention its backyard is just across the alley from the Santa Monica Freeway offramp at Centinela. Must be that zin again. We know the comps are $100K less.
___________________

It's baaack! Now (3/6) asking $865K (a whole $4K less), claiming "Extra bonus/media room." [Felt like an old covered patio. Remember those?] "Gorgeous gardens, tons of plants & trees." [The photo doesn't lie.] "Huge lot ready for lucrative expansion project." [Huge compared to what?!]

North of Montana Storybook

"North of Montana" on the Westside doesn't mean somewhere in Canada, it means the richy part of Santa Monica, north of Montana Ave.

This $2.15M 3 bed 2 bath house on 22nd St. is the first low-end house on the market there this year. As in, the agent during a busy open house yesterday said there were already 3 offers to tear it down to build a new "monster mansion." Which would be a real shame, as this 1927 house is really cute and in good condition, an opportunity to fix up in place or keep the front and add on behind. Expect the city Landmarks Commission to weigh in if a demolition permit is requested.

(The listing was confused what style to call it, first Spanish, then Tudor. I'd call it "Storybook," like the witch's house in Beverly Hills.)

Last year saw low-end houses north of Montana falling to $1.6M for 450 Lincoln and $1.86M for 620 17th, both closed in November. A high block of a higher-numbered street is considered more prestigeous, though, and this is a larger and nicer house. A new big 2-story house here would sell for over $3M or $4M.

Back in the crash of the early 1990s, "lot value" (tear-down) houses north of Montana fell from over $900K in 1989 to below $600K in 1994, over 1/3.

Effect of subprime meltdown?

Duckweed has a very relevant question, worth a new blog post: "Anyone has any comment on the effect of the new subprime lending guideline on LA RE? What's the exposure of this town?"

Calculated Risk's "Subprime: The impact on Existing Home Sales in 2007" is a good start - worth reading in full - although based on national statistics:

This is 2005 data, and other sources (and here) suggest non-prime (subprime and Alt-A) mortgage lending was about one third of all originations in 2005 and 2006.
...
And, according to this note perhaps 25% of subprime borrowers will be unable to obtain loans in 2007:
...
So if one fourth of potential subprime borrowers are unable to purchase homes in 2007, as compared to 2005 and 2006, then 25% of 20%, equals 5% of the total market. In 2006, there were 6.48 million existing homes sold, so 5% would be just over 300K homes.

The implosion of subprime lenders probably will have more effect than the guidelines. If there are few lenders left, and the market has finally made them afraid of risk, loans have got to dry up that have been propping up lower-end L.A. real estate. Which cascades onto demand for move-up properties. And then there are the Option-ARM resets coming this year.

I'm really angry about those easy lending standards, because they provided the money that drove up prices and essentially forced buyers to play by those rules to compete. Lack of regulation is the big villain behind the coming defaults and property value losses.

Let's keep this open for updates, especially on specific numbers about southern California.
_________________

Jim the Realtor just posted (3/5) that 26% in Carlsbad and 40% in Oceanside used 100% financing of sales closed in February. A comment by oc_fliptrack said Countrywide just dropped stated-income 100% loans, that 100% is still possible down to FICO 620 but now requires full documentation.