Avg. DOM Creeping Up

One indicator of the rather obvious stalling-out of the local RE market is a rise in average days on market (DOM) for active listings.

The increase for all of our subject region (see first chart, covering 5 mos. for MB west of Sepulveda) is not dramatic from August to September (to 111 DOM from 108), but from the end of July till now, it's more substantial (90 to 111).

Since the troubles began about a week after the end of July, a 23% increase in average DOM suggests a noteworthy slowdown.

Keep in mind, average DOM is a factor of stale listings combined with new listings. Sales usually help to drop the average DOM. There are 7 new listings in the latter half of September pushing DOM down, and some cancellations dropped the average further. Having very, very few sales in September helped to grow the DOM.

But that's why we average out data – the normal course of events should keep a relative balance. The DOM increase tells us that the supply/demand equation is becoming imbalanced.

Looking at the end-of-month graph for September, the Hill Section stands out at 153 avg. DOM. Two reasons: The forever listing of 844 11th (now 520 DOM) and the reduction in active listings down to 9. But this is no huge statistical perversion. Almost all listings in the Hills are more than 100 days old.

The Sand Section's actives are at 92 DOM on average, with about 1/3rd of the listings pushing that figure upwards.

In the Trees, 110 DOM seems average. No surprise, perhaps, but the <$2m range is faring better, at 88 DOM, while the stagnant $2m+ range, with most of the inventory, is at 122 DOM and counting, despite 3 brand-new listings helpfully dragging that number down.


Obligatory note on methodology: We drew True DOM from the current Market Update spreadsheets (on MBC's computers, not yet published) and, as we have before, eliminated anomalous listings – two in this case, pre-completion listings: 4419 Highland and 644 33rd. Total DOM divided by number of listings = Avg. DOM. Simple.

Rhapsodize, Theorize: Why MB, not Hermosa?

Discussion here at MBC of the lovely new castle at 45th/Highland took a surprising turn to a couple of downsides to Manhattan Beach. We were talking about the refinery, airplane flyovers, Massachusetts, and so forth.

Then someone asked a question that seemed poignant. To paraphrase: How did it happen that MB, and not Hermosa, became the dominant or "in" town around here?

Oh, there's no sense disputing it. The question is why things evolved this way. We'd like to hear your thoughts.

True story: Several years ago, your humble correspondent mentioned to an old family friend that we now lived in MB.

Response: Awkward silence, throat clearing, and a gently phrased, "Oh, do you like it there? Do you find it nice?" This was laden with the sort of bellyache and deep concern you might hear in response to "we've got a great new row house in a rapidly gentrifying hot new urban neighborhood. Don't worry, we have guns."

This person hadn't known MB since the '60s. A lot has changed, and the news hadn't yet hit everyone. (True follow-up story: Some time after, they visited, and we sent them to Mangiamo, and they drove all over town and later told us how blown away they were by how different MB was.)

By the time MBC landed here 10 yrs. ago, the transition was fully under way. First-ever rental house we looked at, the owner said, "The most common sound you'll hear in Manhattan Beach is a bulldozer."

But we digress.

Why MB and not HB?

MBC's first theory is that the initial zoning and development decisions for MB were better. (Better, not perfect.) Larger lots, more SFRs instead of MFRs. More walkstreets. More Hill Section – a nice signature. (The MB Historical Society has a couple of great books and nice pics if you want to look way back.)

Bonus: Refusing to provide adequate parking for out-of-town visitors probably enhances our town's value and cache for residents.

More recent bonus: Downtown has begun to flourish in the last few years, but even with Metlox and Shade and Towne, it's still pretty sleepy.

It's not MBC's style to diss Hermosa, but if you'll keep the comments clean, feel free, since this is a comparison.

Systematic $100k Cuts on Elm

In three months on the market, the new construction at 2807 Elm has cut $400,000 off its asking price. Each time, the cut was $100k.

The initial list date was June 28. The cuts:

• July 20: $100k
• Aug. 19: $100k
• Sept. 5: $100k
• Sept. 25: $100k

That's a drop of about $33,000 per week.

2807 Elm (click for details) is a lovely and mostly well-thought-out home that simply started much too high at $2.899m.

The current price of $2.499m for 5br/5ba and 3550 sq. ft. means it remains in the upper tier of comparable active listings. (Click here to download the newest MB Market Update.) The closest comps are 648 35th (5br/5ba, 3600) at $2.295m (began at $2.45m) and a quite nice one at 2709 Oak (also 5br/5ba, 3600) at $2.299m.

It seems plain that Oak could drop further, given the major location issue and its year-plus time served on the market. It has plenty of charms.

Meanwhile, 35th is nice enough (MBC objects to a ridiculous use of stapled-on stone for the protruding front room; click address above to see listing pics) although buyers seem not to love this part of 35th.

It seems that the sellers of 2807 Elm are actually trying to get it sold, which is more than we can say for lots of the other 27 actives in the Tree Section above $2m. MBC has recorded only 6 sales of new construction in the Trees between $2m-$3m since March, and there are now 13 active new construction listings in this price range, including everything mentioned here.

Step by step, the folks offering 2807 Elm will keep working to find the price that gets you to say, alas, "this is a great home at a good price."

With a decent location, a plus build and two nice outdoor spaces (the lot is larger by 1100 sq. ft. than your average Tree Section lot), they could pull it off. They have to get the price right, but at least you can say they're trying to find where the market is now.

45th/Highland Open Sat-Sun

Don't cancel your weekend plans, but you might want to find a window this Saturday or Sunday (1-4pm) to drop in on the first open houses at 4419 Highland (click for listing details via Redfin). For our most recent stories on this home, click here.

Sometimes called the "Gateway to Manhattan Beach," and other times called the worst location west of Sepulveda, we must also be clear that this home is a candidate for "most improved," inasmuch as it replaces a godawful dumpy shack. That was no way for our town to make a first impression.

Enter on Highland. If you're driving, park....... um....... where? Any suggestions?

If you do go by, ask yourself: Is this home "three levels of bliss" as the listing assures us? And come back to this post to write your reviews.

Blogroll Updates

A quick note here – MBC's blogroll is updated for the first time in a long time. See the right-hand column.

We've got categories now for Housing and Real Estate (many of them bubble blogs), Realtors' Blogs (a select few), and Economics.

The additions are generally bearish. (What're you gonna do? That's who writes blogs!)

We're open to suggestions for well-written blogs, regardless of perspective. We're particularly short in MB or South Bay blogs that lean positive. That's a long-running problem.

Can't guarantee a mention or link for everyone, but your suggestions are welcome.

Confirmed: 2007 the Worst in 8 Years

You have to hand it to the bulls and cheerleaders who drop by MBC from time to time to say everything is peachy in the MB real estate market.

The two recent focal points of the "all's well" argument have been:

1) This year is pretty much the same as last year, and

2) Inventory is comparatively low, and with no supply glut, there's no crash.

To be fair, our more level-headed friends have also said we can't really evaluate the impact of the troubles – i.e., the problems in lending that became undeniable this August – until, perchance, next Spring.

Fair enough, we can wait.

The bulls and cheerleaders cited data. But, alas, we have data now, too. Data tell a story. And the data tell us that 2007 is already the worst of the last eight. Not all of those were obviously "boom" years.

You're looking at two graphs, the first of which tells us that August was the slowest for closings in the eight-year period of 2000-2007, inclusive. So, "August is always slow," yes, but this year, it was worse than we've seen in a long time.

(MBC has reported here on new escrows/pendings, not closed sales, for August, saying we saw a 50% drop against the average of the prior 4 months. We'll see those results mostly in September's closed sales.)

The second graph shows us that 2007 compares OK with 2006, year-to-date, in that closed sales were almost at the same pace as sales last year – through August. But the 4% lag this year compares to a 12% lag from 2005, and a 21% lag from 2004, and, well, there are no years "worse" than 2004 in this sample. Instead, there are some mighty big boom years.

It's clear now – 2007 will be the worst for sales in Manhattan Beach in this decade. (If you want to be grandiose, you can say "in this century.") The slowdown mostly pre-dated the mortgage meltdown in August. We're not trotting along, exactly, in September.

It's almost too late in this story to give credit where it is, most assuredly, due. Every number you see comes from local realtor Kaye Thomas, who did the research and published it in table form earlier (here and here). MBC, and all our readers, owe Kaye a simple "thanks," at a minimum. (Visit her blog.)

Why would a realtor publish such negative data? Maybe Kaye thinks data don't have an agenda. Maybe she thinks sellers and buyers need a true sense of market conditions to plan their next steps. Let's hope she keeps it up. So thanks, again, Kaye, for a little dose of truth.

They Were Made to Move

In June, MBC featured a South End walkstreet home that had hit the MLS after being listed first for some time on Zillow with a "Make Me Move " price of $3.75m.

Once 332 6th hit the MLS, the asking price took a 10% step down to reality, to $3.375m.

332 6th was sold within a month (hey, it's a lovely walkstreet home, of course it went fast!). It closed the other day for $3.141m. That's $234k off the MLS list price, and down 16.2% from that first dream price on Zillow.

Everyone's happy. One family has a nice $3m walkstreet home, and another walks with a nice $1.3m profit.

Uh-oh. Someone is not happy. The sellers of another $3m walkstreet home have canceled their listing. Perhaps they finally saw the writing on the wall. Perhaps the 6th St. sale ended their delusions.

There was always something strange and half-hearted about the 7-month effort to sell 404 10th. Almost like the sellers were using an agent and the MLS as they might have used Zillow's "Make Me Move." They set a high price and waited to see what might happen.

The owners bought this high-style Lazar build (5br/3ba, 2900 sq. ft. – 1200 sq. ft. smaller than the 6th St. house) in April 2006 for $2.5m. Not yet a year later, in Feb. 2007, they put it up for sale at $3.2m, and quickly raised it to $3.3m, the price it had for most of the Spring and Summer.

Sure, people pay $3m for lovely walkstreet homes. But not every one is a bargain at that price, particularly when buyers know that you paid 33% less last year.

Countdown: Sept. May Be Worse than August

It's Monday, and MBC will be looking for new escrows to post. Was anyone busy this weekend?

Here's a reason to worry: We're going to need some new sales, a few at least, for September to be "better" than August.

In August, we saw 10 SFRs go into escrow west of Sepulveda, and stay. (See MBC's 5-month inventory report for that number, and previous months' pendings.) Right now, we're stuck at 7 new SFR escrows in September, none new since the 13th, by our records.

August was already poor compared to recent months – about half the recent rate of sales. You'll hear that August is always slow, but this year's slowdown had a clear, driving factor – the metastasizing mortgage mess.

MBC has noted before that there was already something strange about the September sales we have seen – they're all at the very high end. (Five of 7 homes sold were priced above $3m.) That fact suggests that a buyer boycott has already taken hold among mainstream listings below $2m. (That's where 30 of the current 73 listings are priced.)

MBC has some data we'll get to shortly to show that 2007 is already the worst year for sales in the last eight (2000-2007, inclusive) in our city, though it's only a step down from 2006 – so far.

Till then, we're eager for data to fill out September. Can someone help finish out the month with a bang?

Update on Three Hard Cases

We had no idea when we featured a few specific homes on MBC that they'd be with us for months and months.

You get the feeling that nothing has changed with these listings, despite step-by-step price cuts. Something is keeping the buyers away. Now it seems all three sellers, who bought their homes within the last couple of years, will lose money.

• 758 14th, in the Arbolado Ct. development, surely harmed its own chances by overpricing to start. On March 1, this one began at $1.990m, fully $295k more than the owners had paid 9 months earlier, in July 2006. The list price has edged down a bit at a time, so that it's now at $1.699m. Loss with 6% cost of sale: $97k.

• 3009 Highland (listed now as "232 30th Pl" - click for details), first drew MBC's notice (see "Decelerating Returns") because the same home had been sold over and over in the last several years:

3009 Highland sold for $510k in Oct. 1999, then for $789k in July 2003. Precisely 2 years later (July 1 '03-July 1 '05), it went for $1.225m to the current owners.

At the time, MBC cheered the sellers' modest demand for 10% gain over 2 years, and took it as a sign of slower times. That was 4 1/2 months ago. With a new price of $1.315m, the sellers are poised to make just $10k – at 6% cost of sale – not 10%, and it isn't hard to believe they could take a loss just to make a sale.

• 601 Larsson is a short sale in the Hill Section featured on MBC several times (here, here and here, for instance). Two years ago (Sept. 2005), the current owner paid $2.0m. The home hit the market at $2.695m on March 20. In the background, the home has been facing foreclosure auction on and off throughout 2007.

After price drops failed to move it, the seller tried to get a buyer to take over the loans. Finally the lenders approved a short sale, and the home came up at $1.999m. Now it's at $1.849m. Since the seller is a realtor, we're guessing there's no seller agent commission, so the cost of sale at 2.5% to the buyer's agent would be $46k. Total loss against the 2005 price: $197k, presumably most or all of that being a hit to the lender.

It seems clear that folks are passing on 3009 Highland and 601 Larsson due to location issues. 14th simply seems to be a bit tired and, likely, still overpriced.

Every one of these listings has tried cutting, but as Summer turns to Autumn, and buyers are both challenged and picky, how are these sellers going to shake it up?

Scaffolding is Down, So's the Price

The builders have made impressive progress at 4419 Highland (45th/Highland). With the stucco team finished, we just need to wait for the interior to be built out and this one will be ready for walkthroughs.

MBC has to admit, this home looks a bit better than expected, and of course it's a giant improvement over the wrecked shack that used to occupy this lot.

We do find it a very strange use of stapled-on stone for one corner to feature stacked rock. What structural purpose would be served by having a single corner built from stone, if it were real? This is just a perplexing accent.

To celebrate the end of exterior construction work, as the scaffolding came down, so did the price. The listing began at $1.695m – let's be honest, that was ridiculous – back on June 3rd, and now we're at $1.580m.

Will you love this house? The listing gives you many reasons. (MBC is retyping the language, which appears entirely in upper case, and therefore screams a bit too much.)

Stunning brand new construction!... Meticulous attention to detail and craftsmanship at it's finest. Extra large 4 bedrooms 3 baths with approximately 1,973 square feet! First thing that will win you over is the high ceilings, second, large open living room with stylish fireplace exquisite ocean and Malibu mountain views! Three levels of bliss! From marble in the bathroom to high-end stainless steel Viking stove and appliances this is truly a custom gourmet kitchen!

"Three levels of bliss!" We just love the alternative reality of promotional copy.

Problem: as we've all discussed before (here, here and here), this is possibly the worst lot in all of MB, certainly west of Sepulveda. (There's a home on a corner lot at Aviation and Marine that probably takes the cake for the utter worst.) Therefore, this one calls for the mother of all location discounts. But it's not priced that way, yet.

Ah, but there is this in the "addendum" to the listing:

Bring any and all offers!

Now that's more like it. So, what can the builder take without losing money?

Let's go back to our first post on this house, before construction began and the builder tried to unload the project on Craigslist:

Price for Land, Survey, Plan check fees, Permits, Approved Design,
Demolition, Grading, Utility hook-up, Retaining walls and foudation is
$1,089,520

The balance of the construction contract is $309,980.

$1,399,500 to complete. Comps are in the $1.6 million to $1.7 million range.

Assuming no construction cost overruns (ha!), and assuming just 5% cost of sale ($70k or so), the bottom line would appear to be around $1.47m. The builder might be OK with going lower if some profit were built into that advertised figure of $1.089m for land along with the permits and initial work. (They paid $730k for the lot.)

But MBC, and a lot of our readers here, are going to be shocked if 4419 Highland gets $1.4m or more. Yes, shocked.

MB Market Update for 9/15/07

The new MB Market Update spreadsheets are available for download by clicking here, or by using the link at the upper-right corner of the main MBC page. Information in this update closed Sept. 15. This and older updates are archived at our sister-site/data-dump here.

Quick note on a new feature: As readers may have already noticed in recent days, MBC is providing links to active listings via Redfin, which has recently expanded into Southern California. Previously we could not reliably, directly link to individual properties, so this is a nice development. Just about any day on the blog where we write about a home, a live link will appear with info via Redfin.

The first half of September in our west-of-Sepulveda region was distinguished by big-dollar sales. Out of 7 SFRs west of Sepulvda to go into escrow (and stay), 5 were priced above $3m. The full tally:

• Hill: 512 John ($3.99m), 1012 Pacific ($3.8m)
  

• Sand: 217 Sea View ($1.520m), 216 2nd (under construction, 1 DOM, $4.699m), 1212 The Strand ($10.9m)

• Trees: 717 31st ($3.379m), 737 36th ($1.645m)
  

Because of the way median prices are calculated, the median price for the month thus far is $3.8m.

Meanwhile, inventory remains level at 75 SFRs west of Sepulveda. Looking at these by section:


Hill Section

There are 9 active SFRs, a recent low even for this low-inventory region.

There were two sales (new escrows) in this period: the oft-discussed 512 John (see here for the most recent piece and links); current estimate is that the seller could lose $300k. Meanwhile, 1012 Pacific appears to be a big-dollar lot sale at $3.8m for a 12,000 sq. ft. lot.

We saw one closed sale price come through, on 637 6th, at $3.625m, down $274k (-7%) from asking at just 47 DOM. As we said previously, these folks meant to sell. They walked with $500k.

There was one price reduction, at 811 Boundary (click for details via Redfin), now at $2.399m (-$200k/-8%) and 87 true DOM (they pulled a bogus re-list with the new price).

Other re-lists without new prices:

844 11th (click for details), which we had just taken off our list, had MBC fooled (but only temporarily!), now at 505 true DOM. Also, 869 3rd (click for details), for sale since July 30, but off the MLS a few weeks, came back at zero DOM, and with no figure in the record for “combined days on market” (CDOM), the field realtors look at to get the "truth" about a listing's history. Tsk, tsk!


Sand Section

There are 22 active SFRs.

We have two new listings, similarly sized and similarly priced:

• 3617 Vista (4br/3ba, 2750 sq. ft., $2.149m), featured on MBC here, and

• 2008 Highland (4br/3ba, 2350 sq. ft., $2.295m), a newer, clean, modern.
  

We also saw three sales (new escrows), including the biggest we’ve seen, 1212 The Strand, listed at $10.9m (seller paid $4.9m in May 2002). Also going was 217 Sea View at $1.520m, notable because the home was prominently pitched as an opportunity for a lease-option purchase. And 216 2nd, under construction next to an alley (er, it's called "Bayview") above Manhattan Ave., popped up in escrow at $4.699m.

505 3rd, which MBC has called "a head-scratcher", among other things, which has been seeking $1.949m for an uninspiring, tired home with no yard, went into and out of escrow for at least the second time since June. (And once again responded to the bad news with a bogus re-list.) Sellers paid $1.6m two years ago (Sept. 2005) and would appreciate a profit, if that can be worked out.

We also added 1312 Manhattan Ave. to the escrows, though it happened some weeks ago and we just hadn’t recorded it – possibly a lot sale (the listing pitched it as such), last at $2.5m, over 400 DOM.

We got two closed sale prices:

• 224 25th, a listing that began in February 2006 at $2.995m, and was on and off the MLS, closed for $2.685m, down $310k (-10%). Not bad, considering.

• 440 6th, a walkstreet corner lot, went super-quick and above asking (but of course it did!), taking $2.050m despite seeking $1.899m.
  

There were three price reductions: -$5k at 4104 Highland ($1.610m) [sorry, we just can't bear the location], -$34k at 117 Highland ($1.365m), and an intriguing -$100k on new construction at 228 29th Pl ($2.949m), on market less than 30 days.


Tree Section

There are 44 active SFRs, with 16 below $2m and 28 above $2m.

We have three newbies:

• 3013 Oak, on the small side at 3br/2ba, 1500 sq. ft., but completely updated, seeks $1.349m. We must admit, this is a decent location on Oak, in that there’s little through traffic with Ardmore at the northern end of the block. This one was in escrow briefly within a week, but it came back.

• 725 12th is a clean remodel, quite small at 3br/2ba, 1300 sq. ft., and currently a rental, seeking $1.4m. MBC feels certain this was on the market and sold last year, but we see no record of it.

• 605 36th is vacant and pretty tired, just one house off of Blanche, but with some updates and some charms, 4br/3ba, 2450 sq. ft., seeking $1.559m.

We saw two sales (new escrows): new construction at 717 31st ($3.379m), pictured and discussed here, and Peter Brady's old house at 737 36th ($1.645m). That one had been on the market for more than a year – don't you love how it sold within 10 days of a mention on MBC?

Reduction time again: Nine of our 44 listings took cuts this time, none bigger than the new construction at 570 27th, which dropped from $3.75m to $3.3m, making the total reduction since it came on the market (at $3.899m) a whopping $600k.

We also had one cancellation, 2622 Pacific, a listing that always struck MBC as not all that serious.

Closed sales tell an interesting story. Three out of 7 got more than their listing prices (2559 Valley, 3108 Poinsettia and 858 14th), the last a teardown.

The big news is 2104 Palm, new construction (5br/6ba, 4500 sq. ft.) that took $650k less (-18%) than the initial asking price of $3.675m. It closed at $3.025m.

As Good As It Gets on Rosecrans

As the builders were putting the finishing touches on 3617 Vista, MBC thought it could be something special. The listing photos (click to view via Redfin) for this new construction were quite pleasant, and it seemed like a winner. So MBC dropped by for a tour.

Overall impression: A very solid, voluptuous-feeling build with lots of nice custom touches. Maybe you've seen the details before, but here they hang together as a package that feels unique. It's urban-feeling beach living with some nice views that not everyone nearby has. It's lovable if you can cope with the location.

BUT: It shouldn't be a surprise – the Rosecrans location is a challenge. Much of the living space is high up off the street, but this is a loud part of Rosecrans. As we stepped inside, a bus began to rev up from its stop 10 yards down the hill. With the home's entry door open, the noise resonated. Throughout our visit, vehicle noise was noticeable – in part because cars are gunning their engines to climb the hill.

Sure, you won't keep your front door open if you live there, but the master bedroom faces Rosecrans, as does the upper-level deck. Any open window invites the noise in.

Location mitigation: The views and sense of openness afforded by the location high up Rosecrans can be taken as an asset, trading off against some of the negatives.

More details: The master suite and one other bedroom with bath are on the middle (entry) level. Two more bedrooms are downstairs – they share a hallway bath. There's also a sand room (mudroom for beach living) at the lower entry, and a large storage room. Upstairs, the kitchen, dining and living areas are combined – no walls or differentiation of space, save for the separate bath. The kitchen has all high-end appliances and custom touches like a backsplash featuring a picture made of small tiles.

More questions: It's hard to figure how this home has the 2750 sq. ft. that are advertised. It seems a lot must be devoted to hallways and stairs. None of the bedrooms is extra large, and the upstairs great room space, while nice, seems likely to get cramped when furnished.

Given the flow and the location of the fireplace, we really don't know where the family TV is supposed to go in the great room; it must be assumed that you'll sacrifice a bedroom as a media room.

MBC says Huh?!?: The master bedroom and the other bedroom on that level feature carpeting that can only be called neo-shag. We'll grant you that we've all seen enough berber for a while, but this long, plush, yarny flooring was an eye-opener.

Pricing: Start price is $2.149m. Assume a 10% location discount was priced in for now, so perhaps comparable listings off Rosecrans would have been at $2.35m.

At the same time as Vista started, 2008 Highland came on at $2.295m. (Click to view listing via Redfin.) Highland is newer, but not new, and has 400 fewer square feet.

A scan for comps finds a range of homes at $2.15-$2.5m, but none with a similar location issue. Of course, if you're ready to spend $2.15m you can have your pick of a dozen homes in the Tree Section with a yard and no Rosecrans factor, but, alas no views.

If Vista doesn't go quickly, we'd guess a sale could come in nearer to $1.9m.

The Fed Has Cut, Let's Go Shopping

Now that the Fed has made its move, -0.5% off their funds rate, the next move is up to home buyers.

Mortgage rates have already moderated since the early-August scare, though the rules for loan qualification remain tight at all levels. Only buyers with big cash down payments and good income & credit are going to have a fairly easy time getting the loans they want. Fortunately, we've got a few of those looking in MB.

If mortgage rates respond to the Fed, that's a nice discount and a reward for waiting. But mortgages need not track the Fed if there are other factors. Will they move in step? Something to watch.

There's euphoria on Wall Street today, but the Fed made this move out of worry. Coupled with the good news are warnings – of a recession, decline in the dollar and increases in long-term rates.

So the question is, how much does a rate ease impact psychology? We're getting our one-day answer now: Dow up 336 (+2.5%).

Taking a Modest $500k Makes the Sale

Six weeks ago, MBC took note of two Hill Section listings that were similarly priced, but whose sellers had vastly different ideas about how much their homes had appreciated since they were purchased. (See "Two Views from the Hills.")

One purchase was about 3 years ago, and the other 2 and a half years back. Both were newer homes, but one was alleged to have grown 25% in value, while the other supposedly shot up 64%.

The more bullish sellers happen also to be local realtors, folks you expect to be tuned in to the market.

We're ready to close the first chapter of this story. A closed sale price has come through on 637 6th (pictured above). They got $3.625m. That's a tidy $500k profit, tax-free (before costs of sale). Somewhat remarkably, the sellers took $274,000 off their list price to make a deal, with just 47 DOM. They were ready to sell.

With that closed price, the market is telling us that 637 6th appreciated by 16% over 33 months; an annualized rate of about 6%. Nothing garish there.

Next stop: 869 3rd (click for property details, or here for an update from last week).

The owners paid $2.44m, and now want $3.99m.

Put it another way – the comparable listing just sold quickly and handed $500k to the sellers. These folks want three times the profit, $1.55m. (Maybe they snapped it up below market value in 2004.)

We know they know the market. How patient can they be, and what magic can they pull, to get what they want?

Inventory, Absorption & Balance

MBC began publishing inventory tracking data for our territory (SFRs west of Sepulveda) in March 2007. To hear the pros tell it, we began at a time when inventory was already fairly low, and there’s been little bounce up since.

For instance, MBC noted just last week that inventory in our area was at 68 at the onset of Spring (late March), and 77 (+9 or +13%) at the end of Summer (August 31).

Three sources indicate that inventory is down about one-third now from a year ago:

• Kaye Thomas points to a story she posted on her blog 11 months ago citing inventory at 215 active SFR listings as of Oct. 1, 2006, in all of MB (including East MB). She now counts 118, which would be a 45% drop in listings.

• A commenter on MBC posted Trendgrafix data saying that last year “at this time” (no specific date) there were 174 active SFRs in all of MB; while there are 118 on the MLS now. That's a 32% drop.

• MBC also has some archived data snapshots via ZipRealty to compare Sept. 2006 with the present, and those show a 33% decline in listings in all of MB. (Our rough tracking then wasn't limited to the regions west of Sepulveda.)

We're going to conclude, then, that the number of listings really is down by at least 1/3rd since last year.

What does that mean? Is lower inventory a bullish or bearish sign?

Certainly, one obvious way for a bear market to break out is for supply to greatly exceed demand.

There are lots of RE markets in California and the Southwestern U.S. that are obviously in trouble, using the bloated-inventory standard. A remarkable website, “Bubble Markets Inventory Tracking,” features data going back to January 2005 for many markets. Click on the links below for the details, but MBC offers highlights:

Phoenix, AZ (metro/region)
9/05 – 18,799
9/06 – 54,629 (+190%)
9/07 – 63,639 (+17%)

Riverside County, CA
9/05 – 12,793
9/06 – 26,597 (+108%)
9/07 – 31,804 (+20%)

Las Vegas/Clark County, NV
9/05 – 14,289
9/06 – 24,300 (+70%)
9/07 – 30,881 (+27%)

Sacramento, CA (metro/region)
9/05 – 10,177
9/06 – 16,668 (+64%)
9/07 – 17,835 (+7%)

San Diego County, CA
9/05 – 16,081
9/06 – 22,710 (+41%)
9/07 – 23,358 (+3%)

In MB, we're going the other direction.

Another way to gauge the relative balance of our market is to look at whether new inventory is being absorbed by demand. Using MBC's inventory data, we can say that over the 5-month period of Spring and Summer, we’ve seen 124 new listings come out, 94 sales (new escrows) and 23 cancellations.

That means new supply outstripped demand by 30 homes. However, the 23 cancellations leaves us at only +7 for the period. We've already remarked that, based on these numbers, supply is not obviously out of balance with demand. The absorption rate in those other markets above is terrible.

MBC still smells something bearish in the air, particularly after the mortgage mess hit in August. It's certainly possible that declining supply indicates fewer "discretionary" sales – particularly move-ups within MB. Anecdotally, move-ups were once common, but not so much now.

We've noted before that if the wave of ARM resets (and recasts) is going to hit our market like it has other markets, we're more likely to be seeing that in 2+ years in the form of forced sales. Longer rate locks and I/O periods for higher-quality borrowers in MB would be the simplest explanation for why even over-stretched borrowers could put off the pain.

Of the 118 actives today in all of MB, 29 are in the stalled Tree Section $2m+ market, where we have long droughts between sales. In the last few weeks, we've seen few sales under $2m. If inventory is going to balloon against faltering demand, it could start now, but we're just as likely to see fewer folks deciding to sell.

What If the Flip Doesn't Flip?

Those home-remodeling TV shows are facing new challenges with a changed RE market. The LA Times already noted this month that the "flipper" genre of cable shows is being retooled:

Producers and some cable executives said they were a little nervous when the housing market first showed signs of trouble.... [An ad exec] wondered how "real" these shows would feel if the home-flippers on TV continued to reap gigantic profits at a time when home prices fell nationwide and "for sale" signs lingered for months in neighborhoods...

And there's this problem: What if the "flip" (a.k.a., "house") subjected to months-long documentary treatment doesn't even go to market before filming ends?

That happened to 3619 Blanche, a Tree Section home featured by TLC's "Flip That House" (not to be confused with A&E's "Flip This House"), in an episode aired this week. (Hat tip to the reader who brought this to MBC's attention.)

The ep, titled, "David," for the name of the flipper, details the interior-remodeling process (kitchen, Master, LR and a bath) for the home, which David purchased in July 2006 for $1.476m. The home is mid-sized, at 4br/2ba, 1950 sq. ft. The 8,700 sq. ft. lot is a nice plus.

No one ever mentions the location: Corner of Rosecrans & Blanche, two fairly busy streets.

David orders some great work. The smallish Master happens to be next to an unneeded second garage. Adios, garage, hola, bonus square footage.

The kitchen is tired, and a wall unnecessarily blocks it from the rest of the living space. Adios, wall. Hola, granite-and-stainless.

After demo and reconstruction, everything is updated nicely, and we're almost ready to flip. The realtor makes a dramatic entry and proclaims the home to be worth $2.2m now. After expenses, David stands to make $500k (pre-tax).

But we don't see a flip happen. You see, David's wife had a baby. (Who could've predicted?) They decided to move in. Apparently, this had become the better of their two homes, so they ditched the other one.

This turn of events disrupts the drama set out at the beginning. David had 2 months to get the work done. He was driving the contractors, and they were pushing themselves. As the show concluded, the need to re-do the landscaping loomed prominently. We were left hanging.

Did they finish? Did they sell?

Or maybe this was just a home-remodeler's story, not a flipper's story. They just called the wrong show.

3619 Blanche hasn't hit the market yet. You have the sense that it will, but there are these complications:

• Do they really want to join the stagnant $2m+ market in the Trees? (29 listings now, extremely little sales activity.)

• Does the wife with the new baby really want to move?

• Where are they gonna go?

• Are they ready to invest their (currently taxable) proceeds from a "flip" into a possibly depreciating new purchase?

• Should they wait 2 years to avoid the tax hit?
  

Turns out, the "reality" shows are finding these sorts of questions interesting, too. As we see in the LAT:

"We feel compelled to tell both sides of the story. We're going to show viewers what's really happening in the market," said Carlos Ortiz, the executive producer in charge of "Flip That House." His show often revisits flippers from previous episodes to provide viewers with "recaps," such as when the sales price falls short of initial projections.

"When people lose money, we are going to show them losing money," Ortiz said. "We're not going to spin everything so there are rainbows and bunnies at the end of every show."

Hey, there could well be "rainbows and bunnies" over at Blanche some day soon.

All of a sudden, we care (dern you, TV!).

Intriguingly, 3619 Blanche has already been on TV. It was previously featured on an HGTV garden-remodeling show.

This provides an answer to the question: "How can I gin up interest in a home at the corner of two busy streets?" Answer: Call in the cable guys.