Community Profile – Santa Anita Oaks

This week’s community article will profile the beautiful Santa Anita Oaks area. This serene neighborhood, also known as the Upper Rancho Estates, is essentially at the foothills of the mountains, located north of the 210 freeway. It’s also close to nearby commercial centers like Hasting Ranch which has Whole Foods, Corner Bakery, Sears, Aaron Brothers, Starbucks, Noah’s Bagels and Jamba Juice.

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Santa Anita Oaks is bounded by Michillinda Avenue to the west, Santa Anita Avenue to the east, Foothill Blvd. to the south and Orange Grove Avenue & Sierra Madre Blvd. to the north. Notice the layout and size of the blocks in this community. These properties have some of the largest lot sizes in Arcadia.

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This is as close to San Marino and South Pasadena as Arcadia will get. Just drive though it and you will see for yourself what makes this community so different than all the others. The wide streets and relatively few homes makes it open and inviting, yet secluded and private. This section of Baldwin Avenue, even on a weekend afternoon, had very little traffic.

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Most of the residential streets are quiet with very few cars. Many of them are lined with giant trees that cover the area beneath with lots of shade. These trees are very old and not something you’ll find in many of the new developments. That is special to me and perhaps to many of you as well.

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These lots are big enough such that even large sized homes and McMansions are set-back from the street. This creates the feeling that the homes are built proportional to the land on which it sits. It also makes the street seem wider than it is.

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Another feature that stood out to me was the diversity in architectural styles in this community. These are not track homes and each one is different and unique in its own splendor. There are all the colors of the rainbow here including Tudor-style homes…

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Traditional Ranch homes…

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Colonial style homes…

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and the ever popular Spanish-Mediterranean style home…

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As I drove through the area I notice several construction sites in the process of rebuilding brand new homes. Some were just torn down and had nothing but a dirt lot. Some have the foundation laid out and the framework completed on what appears to be a more grandiose version of the standard new home. One even showed signs of gaudy McMansion blood running through its veins and I can only pray that I will be proven wrong. With the credit crunch continuing to wipe out the market, I look forward to seeing how these high-end homes will fare when it comes time to put them up for sale.

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Lastly, I cannot end this profile without mention of the pride of ownership throughout this entire neighborhood. Each and every house is properly maintained. There are no trashcans sitting on the curb, no overgrown shrubs impeding the street, no open garage doors with junk visible to the passerby and no run-down cars in the driveway. In addition to that, many owners have taken it one step further with professional landscaping that include lush green lawn, seasonal flowers and trimmed treelines.

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These are truly worthy million dollar homes. Most of the older homes were built and developed in the 1940s and have lot sizes ranging from 10,000 to 40,000 sqft. Even at the bottom of the previous bubble, these homes were going for $800k-$1MM+ in 1996 through 2000. There are currently 7 homes for sale in this community with the price ranging from $1.25MM to $3.50MM. Unless the market experiences a large over-correction, I suspect most of these properties will probably still be well above the million dollar mark when we hit bottom.

Inventory & Market Report – 3/22/08

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Current Market Listings as of March 22nd, 2008*
Properties for Sale: 245 (-12)
Median Listing Price: $775,000 (+0.7%)

Weekly Foreclosure Update*
Properties in Foreclosure: 17 (+2)
Properties in Pre-Foreclosure: 65 (-7)
*+/- is compared to previous week’s data.

As housing prices decline, many people are tempted to jump into the market and grab their piece of the American dream. It is no different than all the people who bought into Bear Sterns at $41/share. Peaking at over $150/share just one year ago, $41 seemed like a steal, right?

Wrong. Over the last 6 months there has been no shortage of news regarding Wall Street’s credit problems and no financial institution that exposed themselves to subprime was immune from it. Many people believed that the worse was over and we’ve hit near rock-bottom. Bear Sterns reached that bottom pretty quick at $2/share.

Unfortunately, this isn’t the case with the rest of Wall Street and definitely not with U.S. housing crisis. MarketWatch has reported that new housing construction are at a 17 year low and that “the housing recession is intensifying.”

It’s only been a year since the credit and housing bubble “popped” so if the early 1990s are any indication, then the U.S. housing recession is in for several years of pricing corrections. For those of you too young to remember the decline after the 90s bubble, I will discuss that next week!

Property and foreclosure numbers obtained from U.S. Census, ZipRealty, Trulia, Yahoo Real Estate and Foreclosure.com. Market listings obtained from DataQuick News.

Arcadia Mania

750 Arcadia Ave. #3

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Asking Price $558,000 ::: Sq-ft 1,882
Purchased Price $415,000 ::: Lot Size 3,162
Purchased Date 03/02/2004 ::: Beds 3
Days on Redfin 42 ::: Baths 3
$/Sq-ft $296 ::: Year Built 1974
20% Downpayment $111,600 ::: Area  
Income Required $139,500/yr ::: Type SFR
Est. Payment* $2,821/month ::: MLS# A08019933

*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%

One of our readers, TY, has requested that I profile this property and I’m happy to oblige. Per the email- “The price is under $300 per sqft and it is in a desirable area, and I loved the layout of the bedrooms and the wood floor. One of my concerns was the property was built in 1974, and i don’t know if that would affect its value significantly in the upcoming years. I think that Arcadia prices will drop down somewhat for the next two year, but not significantly.

There are several factors I consider everytime I review a property.

PITI (principle, interest, tax and insurance)

Using the assumptions above, your monthly mortgage payment would be about $2812. On top of that, there’s $465 for property tax (1%) and $116 for insurance (0.25%). For this particular property, there’s also a $210 HOA fee. I’m going to leave out the maintenance costs to keep this simple. That totals to $3603/month. For that price, you can easily rent a large, detached single family home in Arcadia.

Rental Comparisons

Home values are tied to comparable rents and income. From a quick search on Craigslist, I found a gated PUD on Fairview Avenue (3/2, garage, 2100sqft) for $2600/month and remodeled townhouse (3/2.5, garage) for $2295/month. As stated above, the cost of ownership at this particular asking price with 20% down at 6.5% fixed would be over $3600/month. That’s $1000-$1300/month above the comparables, not counting the lost return on investment from the $111,600 downpayment you’d have to put down.

Applying a quick gut-check with the GRM of 180 would put these two comparable units at $468k and $413k, respectively. Rent-saver buyers will probably not jump in the market until it reaches a GRM of about 160, but let’s use 180 to be conservative.

Recent Comps

Redfin, Zillow and all the other free RE search sites are wonderful and powerful tools because they pull all the data for you. From the same listing page it shows the nearby similar sales below. As you can see, prices are dropping for the nearby sales and since we’re in a declining market, the next sales should be at or below the previous comp sale price.

11/21/07 $651,000 3/3, 2032 sqft
11/08/07 $590,000 3/3, 1798 sqft
01/25/08 $560,000 3/3, 2146 sqft
03/07/08 $490,000 2/3, 1508 sqft

Although the current asking price is just under $300/sqft, the price of such a property would probably be much lower when we finally hit bottom in a few years. The previous sale in 2004 of $415k put it at $220/sqft and 2004 prices were already at elevated levels. The bubble started in 2001 and ended in 2006.This is a very dated property in need of a desperate renovations. It says in the description that the kitchen is newly remodeled, but it still looks like it did back in the 70s to me. In addition, this is an attached condo and attached properties typically don’t fare as well as detached PUDs or SFRs. I disagree with your view that Arcadia properties will not drop significantly. Just because it hasn’t happened yet doesn’t mean it won’t and I expect prices here to experience a correction similar to many other cities. Arcadia was not immune during the previous bubble and there’s no reason to believe it will this time either.

TY – You mentioned that you were a recent college graduate with a new job and couldn’t afford a place on your own. Congrats on that milestone, but for what its worth, I would advise not to buy this property at the current asking price. Prices are way out of line right now and it will pay off to wait for the correction to play out over the next few years. Some patience now would allow you to save up a good size downpayment and the chance to buy at a much lower price. Besides, you’re young and just starting out your career so things may change such that you might need to relocate. Life is too volatile; you just never know.

As a potential buyer, time is on your side so no need to rush into buying.

Columbia Disaster

420 Columbia Rd.

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Asking Price $898,000 ::: Sq-ft 2,000
Purchased Price $156,000 ::: Lot Size 9,060
Purchased Date 09/28/1984 ::: Beds 3
Days on Redfin 180 ::: Baths 1.75
$/Sq-ft $449 ::: Year Built 1948
20% Downpayment $179,600 ::: Area Peacock Village
Income Required $224,500/yr ::: Type SFR
Est. Payment* $4,540/month ::: MLS# A07140037

*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%

Remember what happened to Shuttle Columbia back in 2003? It disintegrated upon re-entry and lives were destroyed. If the sellers at 420 Columbia don’t drop the price down to market values, they can slowly watch their equity disintegrate as well. It’s a very dated property and has been on the market for half a year. I don’t see any reason why a transaction would occur without a significant drop in price.

Listing Price History

09/23/07 $925,000
12/01/07 $899,000
02/27/08 $898,000

In six months time they’ve managed to only drop the asking price by a total of $27k or just 2.9% of the original listing price. Am I missing something here? After two months the price was reduced by $26k and then another two months later, the second reduction is a whopping $1,000. If they’re serious about selling, shouldn’t the price reductions be faster and bigger as it sits on the market longer and longer?

We have documented many properties with sellers who are refusing to accept the reality of the national real estate market decline and reduce their ridiculous asking price to market values. Because of that, their property often sits on the market for months on end – only to sell at a reduced price anyways. This chasing down of the market is not only financially draining, but also takes a huge emotional toll. The stress and uncertainty on the sellers can be a crushing weight even during better economic times so I cannot imagine the anxiety they face today.

To the many others out there, I advise you to price your property at market value. Market value is not what you paid a few years ago, what you think its worth or what your friends and neighbors say its worth. Market value is what buyers are willing to pay for your house today.

  • Buyers don’t care if you overpaid.
  • Buyers don’t care if you need this to fund your retirement.
  • Buyers don’t care if you priced it so that you can repay that HELOC.
  • Buyers don’t care what you think it’s worth.
  • Buyers don’t care what your realtor says.
  • Buyers don’t care. Period.

They do, however, care about getting a good price and in this market they’re looking for killer deals. In a declining RE market, market value is at or below the previous sale of a comparable property in the area. It’s not what properties sold for last year, in 2006 or in 2005. Those days are gone. Price to sell – it works only if you do it right.

Futurama on Panorama

930 Panorama Dr.

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Asking Price $1,080,000 ::: Sq-ft 2,317
Purchased Price $960,000 ::: Lot Size 10,390
Purchased Date 12/01/2005 ::: Beds 3
Days on Redfin 196 ::: Baths 2
$/Sq-ft $466 ::: Year Built 1948
20% Downpayment $216,000 ::: Area Peacock Village
Income Required $270,000/yr ::: Type SFR
Est. Payment* $5,460/month ::: MLS# 22098482

*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%

SELLER ARE EASY TO WORK WITH AND WILL ENTERTAIN YOUR OFFER. SELLERS WILL DELIVER THE HOME W/ NEW CARPET IN DEN AT BUYERS REQUEST AND WILL WAX THE ORIGINAL OAK FLOORS ONCE ALL PERSONAL BELONGINGS ARE OUT. SELLER VERY FLEXIBLE ON ALL TERMS AND WILL LEAVE CREDIT IN ESCROW FOR CENTRAL A/C INSTALL.” Translation – We’re desperate for an offer, any offer.

Many people tell me that Arcadia is different in that people here aren’t desperate to unload property because Arcadians didn’t participate in any of that silly bubble mania. I’m repeatedly told that the people here are wealthy enough to not use option loans and/or 100% financing so the news headlines don’t apply here. I’m also told that prices are “holding well” in the lovely peacock city. Riiiight.

Purchase Price $960,000
Purchase Date 12/01/2005
1st Loan $768,000
2nd Loan $192,000
Downpayment $0

Another property purchased during the height of the boom with 100% financing! These people couldn’t even pony up the downpayment, but saw no problem taking out two loans to buy the house. The lenders aren’t any better in their greed to make closing costs, origination fees and whatnot in letting this loan go through. No underwriting plus greedy people plus lax lending standards equals massive bubble mania.

It’s been 27 months since the purchase and these owners want out. Actually, they wanted out over half a year ago after subprime woes reared its ugly head and the markets were crushed under the beginning of the credit crunch. Let’s take a look at their listing price history.

10/29/07 $1,175,000
11/01/07 $1,145,000
11/05/07 $1,120,000
11/27/07 $1,100,000
01/31/08 $1,080,000

I think we all know where this is going. After being on the market for six months, it’s clearly overpriced and headed for yet another price reduction. If they had reduced the price more drastically, it may have sold last summer instead of chasing down the market with these measly ~$20k reductions. Their realtor should have told them that. Oh wait, the realtor is the seller! “Seller is a Licensed Real Estate Agent” This is a classic case of realtors who drank too much of their own kool-aid and shows how knowledgeable they were about the market. This is their profession, yet they fell into the same debt-trap as many others.

You think they would know better. Apparently not.

Coronado Disconnect

825 Coronado Dr.

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Asking Price $980,000 ::: Sq-ft 1,914
Purchased Price $733,000 ::: Lot Size 7,344
Purchased Date 07/05/2005 ::: Beds 4
Days on Redfin 17 ::: Baths 3
$/Sq-ft $512 ::: Year Built 1948
20% Downpayment $196,000 ::: Area Peacock Village
Income Required $245,000/yr ::: Type SFR
Est. Payment* $4,955/month ::: MLS# A08031233

*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%

ARCADIA SCHOOL DISTRICT. FACING SOUTH. GORGEOUS HOME LOCATED ON A GREAT STREET IN THE PEACOCK VILLAGE, PRESTIGIOUS AREA, NICE NEIGHBORHOOD. THE HOUSE IS ELEVATED ABOVE THE STREET LEVEL AND HAS GOOD CURB APPEAL. UPGRADED, PERMITTED ADDITION AND PERMITTED PATIO WERE ALL COMPLETED IN 2007, NEW ROOF, NEW KITCHEN CABINETS, COUNTER AND APPLIANCES. .. LOTS OF MORE TO SEE. LIVING AREA IS 1914 S. F. , SPACIOUS, 4 BED RMS, 3 FULL BATH RMS, 2 STES. , GREAT OPEN FLOOR PLAN, VERY BRIGHT & AIRY, REAL HARDWOOD FLOOR THOUGH OUT. CENTRAL AIR. DETACHED 2 CAR GARAGE, PLENTY DRIVEWAY PARKINGS. EXCELLENT LOCATION, EASY ACCESS TO 210 FWY.

Here we go again with the ALL CAPS SCREAM AT YOUR POTENTIAL BUYERS signature realtor-speak. There has been much discussion among some of our readers lately regarding the realtor’s commission – who pays, how much to pay and why pay at all? Realtors are suppose to help their clients buy or sell a home and act in their best interest, but too often do we see the agents act in their own interest instead.

I’m always leery when interior pictures are missing because common sense tells me if it looks good, the seller would want to show it off. No photos of the inside usually equates to a bad, probably outdated interior. This particular realtor only put up one exterior picture of this property despite the recent renovations. That’s a shame because potential buyers won’t be able to see the seller’s new permitted additions, kitchen and patio.

Purchase Price $733,000
Purchase Date 07/05/2005
1st Loan $533,000
Downpayment $200,000

Listing Price History
March 2nd, 2008 $948,000
March 3rd, 2008 $980,000 (+$32k)

Yesterday we profiled a wishful seller who wanted to make 25% return on investment without doing a single thing to the property. That property, while expensive, was going for $369/sqft. Today we have yet another wishful seller who’s looking for a whopping $512/sqft. On top of that, they actually raised the asking price a day after the house was put on the market.

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This property was purchased in the summer of 2005 for $733,000 and was put on the market with some additions and upgrades for a $215,000 premium after two and a half years. That sounds a bit steep and unless they’ve been living with their head in the sand for the past year, they know housing has taken a turn for the worse and isn’t going to rebound anytime soon. Apparently these folks have been living under a rock because they decided to increase the asking price by another $32,000 to $980,000 in this dying RE market.

Other 4/3 single family homes in Arcadia are renting for about $2750, but this home is in the prestigious Peacock Village so let’s say that commands a 20% premium – putting it at $3300/month rent. Applying that to a gross-rent-multiplier of 180 would place this property’s value at $594k or 40% lower than the current asking price. Even if you gave it a higher GRM of say 200 or 220, it would still only be worth $660k or $726k, respectively. Best case scenario, it’s overpriced by about a quarter of a million dollars. Yikes!

This seller and their realtor are clearly at a disconnect with the market and raising the asking price certainly isn’t a good way to get out of this bind. Got any advice for these folks?

Camp and Wait

525 Campesina Rd.

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Asking Price $1,950,000 ::: Sq-ft 5,279
Purchased Price $1,548,500 ::: Lot Size 0.33 acres
Purchased Date 07/21/2006 ::: Beds 6
Days on Redfin 103 ::: Baths 5.25
$/Sq-ft $369 ::: Year Built 1989
20% Downpayment $390,000 ::: Area Peacock Village
Income Required $487,500/yr ::: Type SFR
Est. Payment* $9,859/month ::: MLS# 22102844

*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%

Since I featured Peacock Village in yesterday’s community profile, it’s only fitting that we profile properties in that area this week. Today we have a modern home on the north side of Peacock Village asking for $1.95MM with no known price reductions despite being on the market for over 100 days.

Purchase Price $1,548,500
Purchase Date 7/21/2006
1st Loan $1,000,000
2nd Loan $238,400
Downpayment $310,000

This property was purchased less than 2 years ago and was re-listed for sale after just 17 months of ownership. Since the previous transaction took place in the heydays of 2006, it’s probably safe to assume that the seller was able to get an option loan with a teaser rate payment. The once promising lure of making easy money by just buying a property and waiting a few months for it to appreciate has vanished.

What’s striking to me is that these folks obviously know the housing market is tanking (hence the sale), but they fail to price it at market price. It’s as if simply ignoring the news of 20% declines in LA county, rampant foreclosure and spiraling marking conditions would make buyers see past the ridiculous asking price. If they are somehow able to land a sale at the current price, they stand to make over $280k in just 20 months without doing a single thing. We might as well quit our day jobs and just sell houses to each other for profit if that were to happen. With this absurd mentality, it’s no wonder the state of the market is where it’s at now.

Unfortunately, I wasn’t able to find a comparable rental in Arcadia with 6 bedrooms, but with 4 bedroom SFRs going for around $3200 rent per month, I doubt this house would rent for any more than $4-5k/month. That’s about half of what it would cost to purchase it at its current asking price assuming 20% down on a 30-yr fixed mortgage. I’m curious to see how many more days the seller will sit on this asking price before lowering it.