Monthly Archives: June 2008

A Peak and 2 Bottoms

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Most people give me a crazed look when I tell them home prices in Arcadia will drop another 25-30% over the next 3 years. Why is that so hard to believe when values doubled and nearly tripled over the course of 4 years? A housing bubble consists of 3 points: a peak and two bottoms.


Have we hit the second bottom yet?

Over the course of this housing downturn, I’ve personally met friends and associates who are all at different stages of the home buying process:

1) Renter Savers
These people may or may not have money for a downpayment. They understand how bad the market is and rent because it’s cheaper. This group of renters are living below their means and save a good portion of their monthly income.

2) The Clueless
These guys have very little money and absolutely clueless regarding what it takes to buy a home. Therefore, they rent and have no idea as to how bad this housing crisis is because it seemingly doesn’t affect them.

3) Would-be Knife Catchers
I am most worried about this group of friends. They are just starting to realize how much money homeowners made off real estate over the last 5 years and are eager to jump into the market. They view real estate as a great investment and renting as a “waste of money”. Many of them are excited over all the REO auctions popping up throughout Southern California and are eager to land a smashing deal.

In addition, these individuals all seem to know a Realtor or prominent financial guru who encourages them to buy now because we’ve hit bottom. I tell them we have a few more years of double digit price reductions to go and they shrug me off.

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For those in Group 1, they’re in a good position. After this whole crisis blows over, those with cash-on-hand will have no shortage of affordable homes to choose from. Even if interest rates skyrocket, home prices will fall even further and a sizable downpayment increases your buying power.

For Group 2 folks, I’ll sum up the housing bubble in 7 points:

Late 1990′s - The tech boom crashes and everyone wants a safe investment: Real estate!

2000 thru 2003 – Fed lowers interest rates and increases home buying.

2003 - Sales weaken so lenders push for more interest-only (IO) and adjustable rate mortgages (ARMs).

2003 thru 2005 – Housing prices double and nearly triple throughout the country. East and West coasts become investment flipping hot spots and we get:

  • Media hype
  • A buying frenzy
  • Investors flood the market
  • Developers overbuild
  • …and 1 out of ever 4 adults becomes a real estate agent. [sarcasm]

2005 thru 2006 - Mainstream media acknowledges that we’re in a “bubble” but the Feds, Wall Street and National Association of Realtors is resistant to the news.

2007 - Show’s over as the secondary lending market collapses overnight and eventually giants like Countrywide, Washington Mutual and Citibank get hammered. Sales volume and prices begin dropping at record levels.

2008 – We see no stabilization in prices and definitely no bottom in site. The crisis makes it way into Los Angeles and all but a handful of cities show resistance to the trend. Sorry, Arcadia isn’t one of them.

$1,180,000 for Dirt

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Before reading on, I wanted to let you know that the following property listing nearly floored me. We have profiled several ridiculously overpriced properties the last 2-3 weeks but this one gets to take home the prize.

1015 S 8th Ave
Arcadia, CA 91006

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Asking Price $1,180,000 ::: Sq-ft 1,374
Purchased Price $1,017,500 ::: Lot Size 0.49 acres
Purchased Date 11/28/2005 ::: Beds 3
Days on Redfin 2 ::: Baths 2
$/Sq-ft $859 ::: Year Built 1934
20% Downpayment $236,000 ::: Area Near Monrovia
Income Required $295,000 ::: Type SFR
Est. Payment* $5,966/month ::: MLS# W08080872

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

$1.18MM for a property located approximately 6-8 blocks from the Monrovia gang shootings back in January. Not only that, you only get a 1,374sf 74 year old home so a new construction is in order. Essentially, you are buying a piece of land just shy of half an acre.

I know what this seller is thinking – “Just like my neighbors, this lot is big enough to be split into multiple smaller lots so it must be worth a fortune.”

Unfortunately, there’s nothing in the listing saying that the owner got the Permits approved or even bothered to get plans approved for a new McMansion. All they did over the last 2.5 years was water the grass until it was green again (aerial photos show a brown piece of dirt).

If you were to buy the property and live in it, you’d be paying a whopping $859 per square foot. Lets compare that figure to its neighbor located right next door.

725 Tiffany Terrace

2,777sf
4bed 3bath
Listing price: $998,000 ($359 per sf)

For $182,000 less, you get a livable decent sized home. Oh yea, this property has been sitting on the market for 221 days, has 2 price reduction and is a short-sale.

I’m not nitpicking with my properties either. Just 2 blocks South is 1318 8th St.

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This home was completely gutted and remodeled several months ago. It’s currently listed for $928,000 ($414 per sf).

After construction, new landscaping, permit and financing costs, today’s subject property will cost you over $1,700,000. Would you spend that kind of money to live on 8th Street?

Little to gain on Baldwin

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2029 S. Baldwin Ave.
Arcadia, CA 91007

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Asking Price $718,000 ::: Sq-ft 1,859
Purchased Price $650,000 ::: Lot Size 7,480sf
Purchased Date 5/4/2007 ::: Beds 3
Days on Redfin 17 ::: Baths 2
$/Sq-ft $386 ::: Year Built 1973
20% Downpayment $143,600 ::: Area Baldwin/Longden
Income Required $179,500 ::: Type SFR
Est. Payment* $3,630/month ::: MLS# A08072792

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

This property is located on the corner of Baldwin Ave. and Longden Ave. From the exterior, it’s undoubtedly a bit dated but reflects adequate maintenance. Unlike many people who flipped homes during the bubble (i.e. buy, wait 3 months then sell), this flipper actually gutted the interior of the home and added a new kitchen, flooring, restroom and knocked down a few walls.

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According to the sales history, the original owner made a decent return of 8.3% per year on his property after owning it for 33 years. The 2006 buyer was not so fortunate as he lost money after 1 year of ownership.

Sales history

July ’73 – $48,000
Mar ’06 – $655,000
May ’07 – $650,000

After buying the home for $650,000 and remodeling the interior, this flipper was sure they added plenty of value to this property – to the tune of $133,000. Unfortunately, the home was overpriced to begin with and no matter how fancy or high-end your rennovations are, the open market will the final say as to what your home is worth.

As reflected by the listing history, this home will sell no where near its initial asking price of $783,000.

Listing History

Unknown Date $783,000
May 17, 2008 $698,000 (-$85k)
May 19, 2008 $718,000 (+$20k)

After a year’s worth of mortgage payments, Realtor commissions, property maintenance and all the new upgrades, this seller will be lucky to break even on their investment.

As you probably noticed, photos and additional listing information was pulled from NeighborCity.com. Come across a home you like? NeighborCity makes it easy to tour the property by allowing you to schedule a date and time right on the listing page. After scheduling, the site pairs you up with pre-screened and experienced buyer’s agent.

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If you’re feeling lucky, NeighborCity also makes it easy to submit an offer on a home. I can see many people using this feature to ‘test the waters’ and gauge the current housing market. Although an agent is sure to give you a call, this site just makes it easy to get the ball rolling.

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First look: Trulia Snapshots

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Obviously, I’m not up at 5am every morning when the daily posts go ‘live’. Property profiles are written the evening before and set to publish the following morning. Unfortunately for me, it’s 12:00am and both Redfin and NeighborCity are down. I’m guessing the servers are undergoing routine maintenance.

trulia_logo.gifSince this is the case, I decided to skip the regular Property Profile and introduce you to a new web feature we came across last week: Trulia Snapshots. Trulia, similar to Redfin, gathers and display residential MLS and public records data.

Snapshots takes real estate research to the next level by presenting a graphical and interactive display of properties currently on the market.

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I’d say give it a run-through and take a break from the usual line-by-line property listings. If you search for Arcadia, CA, It looks like our friend, 388 Torrey Pines, is still the most expensive single-family property on the market at $4,698,000. Although some sites say otherwise (DOM refresh?), Snapshots pegs this property to have been sitting idle for 55+ weeks.

Update on Sale Prices

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Here is a list of some properties we profiled the last 3 months. Some have been sold and many are still… not!

35 W. Norman – Listed: $1,338,000, Sold for: $1,100,000

31 Woodlan Ln – Listed: $1,724,980, Sold for: $1,667,500 after 350+ DOM.

750 Arcadia Ave – Listed: $558,000, Sold for: $540,000

707 Joanquin Rd- Listed: $699,000, Now listing for $829,00 ~WTF

930 Panorama – Listed: $1,175,000 , Now listing for $998,000 (270 DOM)

1642 N. Santa Anita – Listed: $928,000, Now listing for $878,000

Most of the listing we profiled since January are still on the market, unsold and reflecting multiple price reductions. Many of the listings have been “refreshed” by the listing agent so the “days on market” figure is actually lower than it is.

In addition to the existing re-sale listing, we’re seeing more REOs and shortsales coming onto the market. As this article from The New York Times state, even Prime mortgages are seeing a spike n foreclosure activity.

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Oh look here – It seems like California is leading the way again in distressed properties.

Inventory & Market Report – 5/31/08

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Zip Codes: 91006, 91007market_icon.jpg

Current Market Listings as of May 31st, 2008*
Properties for Sale: 243 (+13)
Median Listing Price: $759,900 (-1.15%)

Weekly Foreclosure Update*
Properties in Foreclosure: 25 (0%)
Properties in Pre-Foreclosure: 75 (+9)
*+/- is compared to previous week’s data.

Changing landscape for Realtors

Apparently, we’re not the only ones that think the average Realtor’s job description is about to change. Jeff Jarvis writes an excellent article on why this is so in Realtors, Prepare to Lose Your 6 Percent.

The only reason — only reason — that Realtors could hold onto their high commission for such little value and work is that they kept information away from the marketplace, making it inefficient.

Despite the changing role of Realtors, I still believe real estate professionals are invaluable in the selling and buying process. I see many FSBO (for sale by owner) listing which could really use some help. It just so happens we came across this photo today to reinforce that idea:

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