Bi-Annual Sales Report

The June 2008 housing numbers are in so I’ll leave these up over the weekend. We’ve gone ahead and compiled the figures for the entire first half of 2008. I would love to here your thoughts!

Arcadia Homes Sales Data

Something tells me that this trend will continue for the rest of the year. This data shows that the “high-end” homes aren’t selling like they did during the peak of the bubble. And you know why? It’s because anybody who could afford the 20-30% downpayment on a million-dollar plus property is probably smart enough to know that real estate appreciation is dead for the next several years and they are better off investing that cash.

Have you heard about Wachovia and their whopping $8.8 billion loss due to the housing and credit crisis? That is no small change folks. Our friends on Wall Street are currently trading assets at pennies to the dollar because what used to be a hot item (i.e. real estate) is now considered the worst investment anybody could hold.

Of course, you already know this. Housing was never meant to be commonly traded as a liquid asset and it never will (except during a bubble!). But tell that to the 200+ sellers currently on the market and you’ll sure to be stoned.

A freeway-loaded Lorena

605 Lorena Ave.
Arcadia, CA 91006

Price: $695,000 ($363/sf)

  • Beds: 4
  • Baths: 3
  • Sq. Ft.: 1,915
  • Lot Size: 4,918 Sq. Ft.

I’ll great straight to it. This is a 32 year old freeway-loaded property. It is definitely in need of some TLC… no, scratch that. This home needs a complete renovation.

Did I mention that your neighbor is the 210 freeway?

This property was purchased in 1999 for $243,000. The current listing price is 3x that.

Valuation after 9 years of ownership:

3%  $317,060 ($166 /sf)
4%  $345,865 ($181 /sf)
5%  $376,973 ($197 /sf)
6%  $410,543 ($214 /sf)
7%  $446,746 ($233 /sf)

Currently listing for $695,000 ($363/sf)

So even assuming an above-average appreciation of 7% a year, the home is a quarter million dollars overpriced. Now, I don’t consider this move-in ready so $197/sf is a more reasonable valuation at $376,973.

13 years of depreciation

For those who enjoy the Victorian style homes, here’s a special one; a 4,693sf single story property sitting on .41 acres. It was remodeled in 2002 and it looks to be in great condition inside and out.

1910 S 2nd Ave.
Arcadia, CA 91006

Price: $1,380,000 ($294/sf)

  • Beds: 4
  • Baths: 4
  • Sq. Ft.: 4,693
  • Lot Size: 0.41 Acres

From the listing:

This is a lucky house, owner has moved to a multi-million dollar home. Price right for quick sale.

Price right, you say? Although this home was upgraded in 2002, is it enough to warrant a $500,000 premium over the 2002 purchase price? Is the seller moving into a multi-million dollar home because some knife catcher is going to pay for it?

Sales History

Feb. 1989 $1,100,000 ($234/sf)
May 1992 $970,000 ($206/sf)
July 1995 $777,000 ($165/sf)
Apr. 2002 $850,000 ($181/sf)

This is exactly why you never want to buy during the peak of a bubble. As we can see here, the 1989 buyer would have lost money on his home even after 13 years of ownership! This is why I believe renting, even at the cost of inconvenience (i.e. school, children, relocation, ect), is worth it when home prices are highly inflated.

I know family members who decided not to sell their home during the peak of the bubble because it was “troublesome” to move everything and rent a smaller place. Now that prices are declining, they are regretting the decision to not cash in on $600k of pure equity.

On the other hand, I also know people who bought during the last 2 years because prices have “softened” and they would be living in it for 5-7 years. Of course, they are now freaking out because it’s very possible their home would be underwater that entire time… or even longer.

But I digress. Here is my evaluation:

After 6 years of ownership…

3%    $1,014,944    ($216/sf)
4%    $1,075,521    ($229/sf)
5%    $1,139,081    ($243/sf)
6%    $1,205,741    ($257/sf)

Currently listing for $1,380,000 ($294/sf)

Based on the 6% figure, would you rent if it could save you $180,000 over the next 2 years?

The price is NOT right on Drake

Today’s new listing is a property that, for the right price, would be a decent home. Although it backs up against Michillinda, you get decent living space, a 10,400sf lot and what looks like a floor plan that can be worked with. Of course, the asking price of $788,000 rubbish….

1151 Drake Rd.
Arcadia, CA 91007

Price: $788,000 ($485/sf)

  • Beds: 3
  • Baths: 2
  • Sq. Ft.: 1,626
  • Lot Size: 10,400 Sq. Ft.

Unlike most properties that slowly appreciated in value between 1996 and 2003, this one got an early start on the bubble:

Sales History
Sep. 1998 $310,000 ($190/sf)
Apr. 2000 $400,000 ($246/sf)
July 2002 $486,000 ($299/sf)

The last 2 owners made approximately $90,000 after two years of ownership. The current seller is aiming for a $302,000 profit after just 6 years! If this was 2006, I would have no doubt that this home would sell between $800 – 900k. Well, that is no longer the case and a $485/sf asking price for this 57 year old home unrealistic.

Straightline appreciation from 2002 gives us the following values:

3%    $580,309    ($357/sf)
4%    $614,945    ($378/sf)
5%    $651,286    ($401/sf)
6%    $689,400    ($424/sf)

My suggestion? List the property at $600k and allow the knife catchers or sideliners bid up the finals sales price. This is a sure way to get a quick sale and still walk away with a sizable profit.

Flipping into trouble on Longden

2 E Longden Ave.
Arcadia, CA 91006

Price: $799,000 ($519/sf)

  • Beds: 3
  • Baths: 2
  • Sq. Ft.: 1,539
  • Lot Size: 8,370 Sq. Ft.

During a normal housing market, rundown properties could be bought for cheap and flipped for a premium after proper rennovations. When we’re in a frenzy bubble era, “flipping” usually meant buying a home and putting it back in the market 3 months later. As seen from here, the folks who actually tried to upgrade properties during irrational times are left in the dust.

Sales History
Jun 1993 $240,000 —
Feb 1996 $225,000 -2.4%/yr
Aug 2005 $660,000 12.0%/yr
May 2007 $708,000 4.0%/yr

After spending a good chunk of money on the “Birch” hardwood floors, appliances, new floor plans, ect… It is now listed for $91,000 over last year’s purchase price. After paying out 6% for commissions, I doubt there will be much profit left in the sale.

Using the 1996 sales price of $225,000 as our base, we get the following valuation:

$225,000 after 12 years of appreciation

3%    $320,796    ($208/sf)
4%    $360,232    ($234/sf)
5%    $404,068    ($263/sf)
6%    $452,744    ($294/sf)
7%    $506,743    ($329/sf)

Currently listing for $799,000 ($519/sf)

Based on the $506k value, do you think the flipper’s upgrades are worth this listing’s $300k premium? Located on the corner of Longden Dr. and Santa Anita Blvd., I expect this home to drop like a dead weight.

**Update**

Here is the requested aerial photo. Great location!

$1.775MM for land. Really sucky land.

Today’s homeowner is left holding the bag and desperately needs to sell the it before his 20% downpayment is gone. No pictures have been provided but the aerial photo is all we need to see…

344 W Foothill Blvd.
Arcadia, CA 91006

Price: $1,775,000 ($685.sf)

  • Beds: 3
  • Baths: 3.25
  • Sq. Ft.: 2,590
  • Lot Size: 1.14 Acres

At first glance, this property seems like a decent deal. Although the home itself is only 2,590sf, it has been completely renovated AND you get a 1.14acre lot. Think of the possibilities (i.e. 4+ McMansions).

Of course, we already know that anything too good to be true… usually is!

[Click below to see the property's incredible location.]

Wow. It sure has one heck of a view (of the 210fwy). On top of that, it is buried between 2 cul-de-sacs so the owner has no room left to pave a street through it. There goes any plans of breaking this property up into 6 smaller lots.

I’m certain the owner had grand dreams of making a killing on this home when he bought it in 2005:

Sales History
Jun 24, 1992 $620,000
Jul 12, 2005 $1,050,000
Sep 15, 2005 $1,550,000 <– WTH

Looks like flipper #1 knew he had a dud in his hands and immediately sold it to flipper #2 for a $500,000 profit after 2 months. $100,000+ in renovations and 3 years later, flipper #2 is trying to break even by listing the home for $1,775,000 ($100k for remodel & $100k for commissions).

$1.775MM to live next to the freeway? I’ll pass.

Knowing all this, I’d have to say this seller is screwed and his $310,000 downpayment will get eaten up significantly by the time the home sells.

Arcadia will see additional 30% declines

I have no doubt that the following property could have sold for nearly $1MM back in 2006. Fast forward two years later and we have an owner who believes he can still get $888k for a property purchased for half a million dollars less just 9 years ago.

1317 Holly Ave
Arcadia, CA 91007

Price: $888,000 ($485/sf)

  • Beds: 4
  • Baths: 2.5
  • Sq. Ft.: 1,830
  • Lot Size: 6,510 Sq. Ft.
  • Year built: 1963

This is not a McMansion. It is a 45 year old home situated on the butt of other McMansions. Take a look at what I mean:

According to the description, this property is located “close to Million Dollar homes.” Is that why the seller thinks $485 per square foot is even a reasonable listing price? For almost $900k, you ge neight the larger lot size of your neighbors or even the newness of the surrounding McMansions.

Sales History

Apr 30, 1998 $275,000
Sep 01, 1999 $357,500 21.6%/yr

Applying the standard appreciation chart, we get a good idea of what this property is really worth:

Standard Straight-line Appreciation
After 9 years of ownership…

3%    $466,456    $233/sf
4%    $508,834    $254/sf
5%    $554,600    $277/sf
6%    $603,989    $302/sf

Current listing price: $888,000 ($485/sf)

Valuing this property at $302/sf means the listing is currently 32% overpriced. Do you find it hard to believe that Arcadia home prices will drop ~30% over the next 2 years?

Tracking the Arcadia and San Gabriel Valley Housing Market