All posts by TheArcadian

Back to the Fundementals

The housing crisis we are facing today is without precedent. Although there have been many housing bubbles in the past, the mess we got ourselves into this time will go into the history books as giant Wall Street financial institutions go from billion-dollar companies to being worth… nothing.

I have said several times that as potential home buyers today, now, is the time to save your cash. Sure, if you’re looking into the Inland Empire or Antelope Valley, there are plenty of unbelievable deals out there. But here, the San Gabriel Valley, has some time to go before prices correct themselves.

Now that the hype is over, people are starting to realize that million dollar plus McMansions are expensive to maintain and $700,000 for a fixer-upper is a horrible deal. People are also starting to realize that Arcadia is no San Marino and actually more comparable to Temple City (not saying that TC is bad).

No matter where you look, everything points to more declines in home prices. Here are figures from 3 major trackersL

Not surprisingly, home prices had skyrocketed beyond relative income levels:

In a normal market, people buy houses because it is better than paying rent. During a bubble, it is much cheaper to rent than to own. It is no different in Arcadia, Temple City, Monrovia and Pasadena. Today, it is a lot cheaper to rent in these cities because home prices are out of line with fundementals. There was a reason that $700k PUDs in Arcadia were selling for only $400k just 5-6 years ago.

I know too many people in the Rowland Heights, Diamond Bar, Yorba Linda and even Irvine regions that argued prices in their area wouldn’t drop much due to ‘stellar’ schools, excellent location and a central hub for Asian immigrants.

Two years later those same people are split into 2 groups:

Group 1: They didn’t buy but claim that NOW is the best time to purchase before prices skyrocket again. (?!?)

Group 2: This group bought and feel that it’s necessary to justify their purchase because it was “the home” and they got a great deal on it (despite being underwater on their loan).

Both groups now say that it is ok to buy if youplan to hold on for 5 years

Does this sound like denial to you? Although I know that everyone is on the lookout for their dream property, buying a home is one of the biggest financial decisions someone will make in their lifetime. There is very little room for choices based on emotional attachment or denial of fact. I believe that everyone should work hard to buy a home one day.

Unfortunately, as an Arcadian renter, today is not it.

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Calling the “bottom” isn’t that important to me because when the time to buy is here, there’s no way you can miss it. Just compare the price relative to your household income and figure out the difference between the cost to rent versus owning. Trust me, if you sit down and run the numbers, the decision will be easy. But if you insist, here is my call:

November 2010

Sure, 2009 will be a dismal year with plenty of false hope. Wait until after the Summer of 2010 because that’s when the reality of real estate will sink in: homes, unlike stocks, are illiquid assets and make horrible investments. But they are great for growing families and individuals wanting to settle into one location.

REO NOT priced to sell at $221/sf

Before we get started on the next post, I just wanted to point out the Comment Tracker on the right-side of this site. It has been reset to reflect on the current month’s comments. It’s more for entertainment than anything else but perhaps SavedbyGrace will reward the monthly top commenter(s) with some free goodies.

**Our sharp-eyed reader has pointed out that this property is, in fact, part of the El Monte School District. Thank you!**

3119 S. 8th Ave.
Arcadia, CA 91006

Price: $639,900 ($221/sf)

  • Beds: 3
  • Baths: 2
  • Sq. Ft.: 2,898
  • Lot Size: 8,902 Sq. Ft.

This is an REO property located on the border of Arcadia and Monrovia. The listing claims that it’s part of the the Arcadia school district but I would definitely double check before even considering this home. Heck, take a look at its location and you will have to double check the city.

From the listing:

REO – Lender Owned Property. Sold As Is, Where Is, And With All Its’ Faults. No Warranties Expressed Or Implied!

Despite its large size of 2,898sf, $639,900 is asking way too much for this property. Take a closer look at the following aerial photo and tell me what that ‘runway’ is behind the back yard. Possibly a drainage ditch? Yes, this property comes attached with many faults…

Sales history:
May 1995 $269,449 ($93/sf)
Mar 1996 $240,000 ($83/sf)
Jun 2005 $695,000 ($240/sf)
May 2008 $630,724 ($218/sf)

The 2005 buyer bought a home that was worth only a third of the price just 11 years earlier. If it weren’t for the housing bubble, this property wouldn’t go for more than $400,000. In addition to being old (although upgraded), it’s located in a horrible location. Personally, I think $400k is still asking too much.

While the 1996 seller walked away with a $455,000 profit, the latest owner and now the bank(s) will be the biggest losers.

Evaluation based on the last 12 years of ownership:

3%    $342,183    ($118/sf)
4%    $384,248    ($133/sf)
5%    $431,006    ($149/sf)
6%    $482,927    ($167/sf)
7%    $540,526    ($187/sf)

You can definitely rent a nice home with better location and much cheaper than what it would take to carry a mortgage here.

No Poo for Winnie – 100% Return after 5 years?

41 E Winnie Way
Arcadia, CA 91006


Price: $850,000 ($546/sf)

  • Beds: 3
  • Baths: 1.75
  • Sq. Ft.: 1,557
  • Lot Size: 8,100 Sq. Ft.

This is a fairly decent starter home built in 1956. While it lacks the charm or extravagance of newer properties, you get adequate living area, privacy and some upgraded features. Unfortunately, the $850,000 price tag puts this home way beyond the classification of “entry” or “starter”.

First, the seller. They bought in 2003 for $430,000 and put a sizable 42% down payment. Regardless of where the money came from, it was very prudent borrowing. Assuming a 30-year mortgage, their monthly payment should be around $1,500/month. More or less depending on the interest rate.

A $1,500 mortgage on a this property is very reasonable due to the $180,000 down payment. BUT take that $180k and apply it to the current listing price and we have a mortgage of $4,297 per month; not including taxes, insurance, ect. Would you spend $4,300+ a month to own this home?

Given that a property like this will go for $300/sf or less in the near future, the following valuations are still too high:

After 5 years of ownership.

3%    $498,488    ($320/sf)
4%    $523,161    ($336/sf)
5%    $548,801    ($352/sf)
6%    $575,437    ($370/sf)
7%    $603,097    ($387/sf)

$300/sf = $467,100

Current asking price: $850,000 WTF

If I was the seller, I would start slashing the listing price ASAP because once the Summer season is over, we’re looking at a even bleaker housing market the coming Fall and Winter.

7,000sf McMansion in Arcadia

2222 S. 2nd Ave.
Arcadia, CA 91006

Price: $2,888,000 ($414/sf)

  • Beds: 5
  • Baths: 5.5
  • Sq. Ft.: 6,981(!)
  • Lot Size: 0.38 Acres

Today’s new listing is a 6,981sf McMansion sprawled across a 1/3 acre piece of land. The description calls it a “Gorgeous Luxury Custom Built Estate.” Of course, we all know that this “custom home” was built using a mid-90’s floor plan and originally designed by San Gabriel Valley architects. Don’t believe me? Walk into a dozen McMansions built between 1995-1999 and you will see the same plans used over and over.

There are two things that are rediculous about this property: 1) The nearly 7,000sf living space and 2) a asking price of $2.8MM+. Do you think adding the ‘888‘ will increase this seller’s luck in finding a rich knifecatcher?

Cost to build this McMansion @ $150/sf = $1,047,150
Cost of property purchased in 2003 = $636,000

Total cost = $1,683,150

Current asking price: $2,888,000 = $1,204,850 profit (!)

What does not make sense is why someone would spend nearly $3MM to purchase an overbuilt McMansion when they could build the same thing for much much less. There are several land lots in Arcadia currently asking for ~$1MM. Assuming you spent another $1MM building a custom home, total savings would be over $800k!

$1.3MM for Land

48 W Le Roy Ave.
Arcadia, CA 91007

Price: $1,300,000 ($754/sf)

  • Beds: 4
  • Baths: 2
  • Sq. Ft.: 1,725
  • Lot Size: 0.44 Acres

This seller did not provide any photos so I’m unable to comment on the physical condition of the home.  All we have for now is a street photo (above) and the following description:

Incredible Value!! One of the best Million Dollar Area. Warm, Cozy home with wood laminating and tile through out. Great back yard with sparkling and gated pool. Guest House over looking the pool and Jacuzzi. This property is good for investor who wants to get immediate income or Built your own Dream Home.

This is a direct copy and paste. The strange use of capital letters and grammar mistakes belong exclusively to the agent. My writing isn’t great but for a potential $39,000 in commissions (3% x $1.3MM), I would make sure this listing is at least presentable.  Hey, maybe the Realtor even knows this is a WTF asking price and no one in their right mind would purchase the 88 year old property for $1,300,000, a whopping $754/sf.

Although here is nothing to indicate that this home was recently remolded or even upgraded, the property looks to be well maintained and shows a lot of potential.

People who tell you that it’s okay to buy now if you plan to hold it for 5-7 years are like the Wall Street idiots who forget any event that is over 4 months. Take a look at the sales history:

Dec. 1988 $500,000
May 1994 $450,000 -1.9%/yr

The 1988 buyer waited 6 years after buying near the peak of that era’s bubble. The result? He lost $50,000 plus several years of paid interest. That was just a 10% loss… can you imagine current buyers who are facing 25-40% price declines?

Using the ’94 sales price, here is my valuation of 448 W. Le Roy:

3%    $680,665    ($395/sf)
4%    $779,254    ($452/sf)
5%    $890,969    ($517/sf)
6%    $1,017,407  ($590/sf)

At nearly half an acre and sitting on a half decent street, I can see someone purchasing this property for around $1,000,000; it’s fundemental value is obviously a lot less. Essentially, you will be acquiring a large piece of dirt… perfect for another Arcadia McMansion.

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.