Monthly Archives: May 2008

Volume Down. Median Down.

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If you refer back to last week’s Inventory post, I had listed the number of home sales for 1st quarter of 2008:

Date Sold Median Price Change YOY
January 32 $687,500 4.17%
February 32 $815,000 -20.61%
March 35 $725,500 -13.16%

That’s a total of 99 homes sold in Arcadia over the last 3 months. How does this compare to previous quarters when the bubble was in full swing? On the chart below, we’re currently on the very right at just under 100 sales.

homes_sales_arcadia.png

Sales skyrocketted during the last half of 2003 and for 4 years Arcadia quarterly sales remained around 200 transactions or more per quarter. That’s averaging about 66 homes a month. We’re currently reporting half those numbers for 2008.

If you look at the Median Price line (in red), it tends to follow the general trend of sales activity. Back in March, our friend over at Dr. Housing Bubble had posted a similar looking chart but it was tracking the median price for LA County.

california-vs-us-median-home-price.jpg

Unless income increases significantly, it looks like Arcadia will continue to follow the general trend of the rest of the county, state and country. And although real estate here will always command a certain premium in terms of pricing, I see 1,000sf, 67 year-old homes listing for $775,000 and my only question is, “WTF?”

This property was bought on January 4th, 2008 for $600,000. I cannot imagine how this home could have commanded a $175,000 premium in just under 4 months.

From the listing:

MUST SEE TO APPRECIATE, MOTIVATED SELLER WILL LISTEN TO ANY REASONABLE OFFER. HURRY HURRY HURRY!!!!!

Hey, look on the bright side. At least it comes with a professionally installed greenhouse.

greenhouse.jpg

Under $750k in Peacock Village

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812 Victoria Dr.

812victoriadr.jpg

Asking Price $748,000 ::: Sq-ft 1,256
Purchased Price $27,500 ::: Lot Size 7,675 sq-ft
Purchased Date 07/11/1969 ::: Beds 2
Days on Redfin 2 ::: Baths 1
$/Sq-ft $596 ::: Year Built 1941
20% Downpayment $149,600 ::: Area Peacock Village
Income Required $187,000/yr ::: Type SFR
Est. Payment* $3,782/month ::: MLS# 22109279

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

This listing caught my eye because it’s a new price point in the beautiful Lower Rancho area also known as Peacock Village. This is the first decent looking single-family residence that I’ve seen under $750,000 in a long time. It’s a nice house and has better curb appeal than the slightly bigger, but more expensive listing on 716 Joaquin Road.

Technically this is still very expensive. At $596 per square foot, it’s more expensive than many other homes, but a SFR in a desirable community at sub-$750k will drag down other higher priced listings. It may or may not have much effect on the surrounding community since it’s smaller than most other homes in Peacock Village, but it will definitely affect the many newer detached condos and PUDs that are listed at or above $750k.

I don’t know about you, but I would rather buy a smaller SFR in a nice neighborhood than a newer, larger condo or townhome near Monrovia or on a large busy street. Listings like the cluster of condos across the way on Huntington (this, this, this & this), the two on 42 Genoa St (A & B), the three on El Dorado (139 #A, 141 A & B), and the set on 2nd Ave & 523 Third Ave A & B would feel increased pressure to lower their asking prices. Single family homes typically fare better than condos and attached townhomes in most markets, but probably more so in a down one such as this when buyers are looking for killer deals.

It may not be happening as quickly as many of you would like, but the market is moving. This new price point in Peacock Village will not only set a new comp in the neighborhood, but put a psychological barrier in the mind of buyers. This will most likely have a larger impact on the local market in the short term than the pending NODs, short sales and upcoming foreclosures.

So what got us into this mess?

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Real estate always goes up.

Land is running out.

Rich foreigners are pouring in by the boat load.

Real estate is a great investment.

So why in the world are we facing the largest housing and credit crisis in U.S. history?

The Culprits

Lenders started pushing sub-prime loans so people with bad credit and no down payment could afford to buy homes. Lenders such as Countrywide even scammed prime borrowers into taking out sub-prime loans. Why? Because back-end commissions were higher and Wall Street eagerly paid for these risky loans.

Artificial demand was created when otherwise unqualified borrowers began buying up houses left and right. There was no significant growth in income or even population. Million dollar homes were bought up by people making less than $100k a year on zero down, interest only, adjustable rate mortgages.

Wall Street somehow decided it was a good idea to securitized these sub-prime loans and sell them on the open market.

Builders decided to increase their home production even though there was no marketing data supporting the need for a significant increase in housing.

The Outcome

Greed – Greed – Greed. That’s what this housing bubble comes down to.

  • Lender such as Countrywide and New Century are wiped out.
  • Homeowners are losing their homes through rapidly increasing foreclosures.
  • Wall Street giants such as Bear Stearns, Citi and WAMU are in major distress.
  • Public builders such as KB Homes, Lennar and Centex are in a financial mess. Local builders are shutting down left and right.

Feel free to share this post with friends, family and coworkers the next time they ask, “So what got us into this mess?”