Shaking the Trees

We've got action in the Tree Section both above and below $2m that may influence future sales.

First, the closed sale price on 754 14th came in at $1.665m. This is the Arbolado Ct. home that popped up last month and sold within a week – see "Aggression Pays" – not only showing up the long-time neighboring listing at 758 14th, but destroying its price. (More on that in a moment.)

754 14th (5br/3ba, 3100 sq. ft., $537 PSF) got a quick sale by apparently "underpricing," or, you could say, accurately evaluating the market.

And what a kick to see that the sellers took a bit less – $33k – despite getting a more or less immediate offer. Convention is that you get full price that early, but, again, the sellers were looking to make it happen, and a trifling $30k wasn't going to get in the way.

So 758 14th, the neighboring house, for which the owners paid $1.695m last year (see our first story on the home, when it began at $1.990m), is now obviously very overpriced at $1.699m. The sellers were already destined to take a loss, but now it's clearly going to be worse.

Another casualty: 2413 Elm (pictured; click address for details).

This is not a bad house. It's quite large (4br/3ba, 3350 sq. ft.) and has some charms as well as some challenges. Some of the design and remodeling are adequate or nice; some feel dated (it's just an 80s thing).

We don't love the impossible entry – a downhill hike along concrete steps – and the master bath needs an expensive overhaul. The location, second house off Marine, is a big minus, even if you don't notice it once inside. So the current price of $1.699m was a good guess at the value, but it makes little sense after a nicer house in a better location got $1.665m. (The sale price on 2615 Valley – now pending – will be a factor too; was last at $1.599m.)

If you're the sellers at Elm, and want to be aggressive after 100+ DOM, try $1.4m, and you'll have a line at the door. (Sellers paid $845k in 2000.)

Meantime, the clustering around $2.1m-$2.2m continued, with 1313 Oak chopping almost $200k, down now to $2.199m – and sorry, still no more free Mercedes.

Don't forget, this one began at $2.799m last year. (Stupid dream.) The owners paid $1.525m in Dec. 2004, and they haven't gotten the message yet – they still want +$674k (+44%). What can we make of this entreaty from the listing language:

SELLER MOTIVATED, PLEASE CALL FOR DETAILS

Though reality is dawning slowly for 1313 Oak, someone else is trying to find it.

The new construction at 2807 Elm has made a new $200k cut to $2.299m, a month after we noted that there had been "Systematic $100k Cuts on Elm." So, yeah, that's twice the normal cut for this one.

We'll say it again, 2807 Elm a lovely, large home (3550 sq. ft. plus a larger-than-normal 5500 sq. ft. lot) that simply started too high at $2.899m (mmm-hmm, they're down $600k in 4 months).

We find this Elm house noteworthy because it's a rare example of a builder/seller trying to get the price right quickly, not waiting around to see what happens.

What we said in late September applies now:

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.

Hey, where is the market now? A lot of people would like to know.

What Britney Saw

South-Enders, Hill Section residents, and Hermosa folks, get ready for a rude surprise.

To the east, Manhattan Village residents, you can take a quick breath, but don't think this is over for you yet.

We have a photo (via x17online.com) that shows Britney Spears fingering through a brochure for 2805 Tennyson Place, a Hermosa Beach home in the hills just a smidge south of MB – west of Sepulveda, barely north up off Gould, and (of course) up east from Valley. Obviously, she's interested.

This large (5br/6ba, 5900 sq. ft.) home plus guest house, on a highly unusual 1/2 acre lot (with ocean views), is listed at $8.585m. You can probably believe the text of the recent Beach Reporter ad (click the last picture in the sequence to see the whole ad):

It's like living at a Four Seasons.

Moreover, the home offers "exceptional privacy and security," along with a "world-class media room" and "a vintage Irish pub."

2805 Tennyson Pl. is perhaps the only home in the greater Manhattan-Hermosa area that makes obvious sense for a Britney type.

She can get lost on the compound and not bother anyone else, except for during her drives back and forth to (we hope!) the Hermosa Pier area. (We're confident that Shade will throw Britney out permanently no later than the third visit.)

There's no guarantee Britney's taking this one, but the listing has gone "on hold" in the last couple days. (That means, at least, that we can't link to it.)

Why is Britney even looking around here? A commenter here on MBC says she's got family somewhat nearby (Marina Del Rey, where another commenter spotted her shopping earlier). We'll take those reports at face value.

Another commenter said that word was she was touring in Manhattan Village, which ain't our favorite place, but it is gated, and it's where a fair share of sports stars and minor celebs choose to nestle.

Look, MBC has no interest in becoming a "Britney Blog," but as long as this particular hurricane threatens landfall in MB, we're going to track it.

What We Don't Need in MB

We interrupt our regularly scheduled real estate commentary with a notice of some concern.

Word is: Britney Spears is "house hunting" in Manhattan Beach. (Source: TMZ.)

Oh Ms. Spears, you confused and frightening thing, this is not your kind of town.

Your lyricists, publicists, record co. execs, lawyers, financial advisers – it's more like their kind of town. A place for entertainment industry people, but not faces.

It's low-key here, and we like it.

The celebs we get here play on cable, or they are team guys who don't draw too much of a spotlight when they're off the clock. (Newport takes guys like Kobe and Rodman. Worth a look!)

If you're going to be a celeb in a small town, you want to know you can go get coffee without a media frenzy. We've got that. Or take the kids to the park – or, hey, the pumpkin races – and be anonymous. That's our style.

It's a family town, Britney, and you're still sort of working on the family part. Guess what? The home doesn't make the family. It works the other way around.

If you go and snap up some majestic Strand house, or a garish Hill Section lair, you're going to ruin things for your neighbors – who, we might note, will be between 6 and 12 feet away from you. (We don't do "gated" or "estates.")

Yes, we're sure you're a willing buyer with cash (albeit with an agenda, too), but we'd really ask that you look farther and wider.

The 1-Year Club in the Trees

No one really denies that there's a glut in the $2m+ segment in the Tree Section. And no one seems to have any big ideas about what to do about it.

MBC focuses here on the special problem of new construction that has lingered for more than a year. What might these homes foretell for the fates of others that don't get snapped up fairly soon?

Of the 30 homes now active in the $2m+ segment, 23 are newly built. Three have been offered for more than a year. Let's look at each, and see what might be holding people back:

2310 Palm (click for details) is a bit of a surprise on this list. It's lovely. No stapled-on stone. The location is good. Materials inside are well-chosen, carrying an authentic-feeling Spanish flavor throughout. It has tons more character than your typical specky.

This one started at a heady $2.699m in August 2006 – over $850/sq. ft. (5br/3ba, 3150 sq. ft.). With no takers, it has drifted down $300k to $2.399m ($760/sq. ft).

Why are buyers passing? For one, useless outdoor space – the entry courtyard is not really a yard or an entertainment space, and the back patio appears too cramped for a table plus barbeque. (And what's with the ledge and the dropoff back there?) In the end: No yard. Also, three bedrooms upstairs are teeny (an MBC peeve).

2612 Poinsettia seems all but forgotten. Few open houses, near-zero price movement. This one began September 5, 2006, at $2.399m, and almost 14 months later it's down all of $49k to $2.350m – $734/sq. ft. for 5br/5ba, 3200 sq. ft.

This home was built by a prominent regional realtor/builder, one whose stuff MBC generally frowns on, but he's been successful. In this case, it could be that the margins are too tight for price cuts, or we may be seeing a strategy and attitude – born of the go-go days – that amounts to "build it, and they will buy." (Also: wait for the market to come to you.)

Why are buyers passing? Location is an obvious answer – between Marine and Ardmore, Poinsettia is a bit noisy and isolated. The exterior has very little going for it. (Oooh, stapled-0n slate tile, grrnnhh.) Poor-quality materials inside, in many parts of the home, convey that this was a low-priority, perfunctory project. Zero warmth.

2709 Oak is back, after more than a week off and a change of agents. (MBC wondered if it was a quitter and/or bellwether in this story; it could still be a bellwether!)

To recap, this one began at $2.395m in August 2006, and slid just a bit to $2.299m, where it lingered for months. The new price is $2.195m (with a bogus re-list, of course), down just $200k (-8%) in a year-plus. (Note: The movement matches that of a few others that all landed at $2.195m this week.)

Ah, but here's the real news. The new agent is going to try to help liquidate this one. From the listing (all-caps in original):

READY TO SELL. BRING ALL OFFERS.

Oak listings don't drive the market, but the final disposition of this one will be interesting.

This is the largest home in the 1-year club (3600 sq. ft.), and it's quite charming. The new set of photos (including some dupes) conveys this much better than before.

Why are buyers passing? Er... location, location, location.

Dear readers, you may not recall when great homes on Oak cost $800k, but you don't have to in order to see why folks can't wrap their minds around spending $2m+ to live 50 yards from Sepulveda, and a mile+ from everything else.

Everyone's Edgy Now

We talk a lot here about buyers' perspectives and sellers' motivations and actions.

Leave it to the LA Times today to bring us the realtors' perspective on a slowing market: They're fed up with "fusspot buyers" and "stubborn sellers," and they're not going to take it anymore.

The article is overstated in a Fox News (or Stephen Colbert) kind of way, but there's something real to it.

Here's the realization that some agents and brokers are taking to heart: They have neither the time nor the money to waste on a lot of us.

You're a buyer and you want to see a lot of homes and take your time? Sorry. If you have one of the agents quoted in the story representing you, you'll see a selection of the homes on market when you start your search, then you're shunted off to email updates. Call when you're ready to move.

It makes sense. "Sales-coaching guru" Walter Sanford says:

Buyers take longer to make decisions, they 'nibble' more, and they will actually eradicate your net profit if you continue to work buyers as a major part of your income flow.

Sanford subjects potential buyer clients to a 35-question inquisition meant to measure how serious they are. Endearing.

Other agents are fed up with unrealistic, "cement-head sellers." We're told that agents refuse one-third of listings due to unrealistic seller expectations. (Don't those sellers end up somewhere – probably with their inflated prices?)

Of course, it's not cost-free to take a listing, and that is the problem. You can't nurse along a deadwood listing for a year or more. The advertising costs, the fliers, and the... well, we guess, blow to reputation, will all do you in. Says one agent:

It all adds up to a big zero if the house doesn't sell.

A big zero is no fun.

It seems widely acknowledged that the profession is slowly ditching some of the less-committed, less-successful and/or newer agents. The impatience portrayed here among those who remain is another measure of the shifting winds.

Regrets, We Have a Few

One kind of regret you'll have if you try to keep up with the news is the regret that comes from missing something.

Oh, dear readers, we missed something today: A cocktail-hour open house Friday evening at a home we featured earlier in the week – 2404 Palm (click for details and dreadful pics).

Absolute RE marketing brilliance, and we missed it. Also, a chance to provide free libations for our loyal readers...

Look, we've been busy with our real work, non-RE stuff, and we only just now got to the Beach Reporter ad teasing a:

Special Cocktail Hour Showing
2404 Palm Ave.
Fri. Oct. 26th from 6-7pm

OK, we've copped to missing it. But tipsters, tipplers – where were y'all?!?

Anyone make it to the booziest public open we're aware of?

Ghastly Losses

Halloween is coming early this year. This has been a week in which huge dollar losses related to the deflation of the RE bubble were impossible to ignore.

Scroll through one of our favorite economics blogs, Calculated Risk, and it's an absolutely grim parade of news. Culling some data from CR and some from other sources:

• Merrill Lynch wrote off $7.9 billion in mortgage-backed securities, nearly twice the amount the firm said it would write off only three weeks before. Why the change? A more honest look at the value of those mortgage-related holdings. The reward for such honesty? The CEO may well be fired, or worse.

• American International Group (AIG) might take a hit of nearly $10 billion due to its exposure (as an insurer) to subprime mortgages.

• Speaking of re-rating mortgage-related assets, Moody's today announced it is in the process of re-rating huge numbers of CDOs full of subprime mortgages – well, that's the headline, but you know they're wondering about all mortgage values – which will, in turn, force the holders of those CDOs to re-value them. And when that happens, see the Merrill Lynch story above – just fill in some other big names instead.

• By contrast to all that news, Countrywide's announcement today of $1.2b in losses – the company's first-ever quarterly loss, but what a way to do it! – actually pales in comparison.

• Bank of America has had enough already, and is exiting the (wholesale) mortgage business. Hey, didn't they just invest in Countrywide? Yes, $2b.
  

And then there's this very, very big picture news: Americans stand to lose $2 trillion to $4 trillion in the value of their homes over the next few years. (Do we hear $8t? Yes we do.)

As CR notes in this story (with a great graph), total household RE values were rated at $21 trillion as of mid-September by the Fed. So a decline of $2t-$4t is a decline of 10% to 20% – certainly imaginable. (We can imagine the 10-20%, but it kinda hurts to imagine the trillions.)

That's a lot of paper wealth going poof, all over the place. Do you get the sense that it's all settling out now?

"The trend is not in the direction of 'This is over,' " said Richard X. Bove, an analyst at Punk Ziegel & Co. "The trend is in the direction of 'This is building.' "

Bring on the ghosts and goblins – something more familiar, and less scary.

Tough Stuff in the Sand

There has been some action on some tough listings in the Sand Section...

• 225 Moonstone (pictured) is back on the market. (Click address for details.) It's one of the least expensive listings in the Sand, at $1.295m (for 3br/2ba, 1350 sq. ft.). This is the second failed escrow for this property. The most recent escrow began earlier this month. (When it came back the first time, the notes specifically said it was no fault of the property that escrow failed.) Noteworthy: The sellers paid $1.140m in Dec. 2005.
  

• 225 39th is now down to $1.599m, down from $1.745m. This one was purchased for $1.595m back in June of this year, as MBC discussed in "Can a Flip Flop This Quicky?" We'd love to have more detail on this property, but if it is really a flip, it's looking like a rather tragic flop.

• 4419 Highland took a few days off the market, and is now at $1.499m, down almost $200k from its start at $1.695m. (For some of the previous MBC stories on this one, see here and here.) Way back in March, before there was a house on the lot, the builder was offering to sell the project mid-stream. The Craigslist language then said: "$1,399,500 to complete." This appeared to be the offering price; certainly it was a reflection of the builder's costs. As the price inches down, doesn't it appear that a loss becomes more likely?

• 4104 Highland, which we often neglect here at MBC, continued with the strategy of teeny weekly reductions (typically $5k), so it's now at $1.580m, down from $1.719m. Though it's by far the largest of these listings (at 2550 sq. ft.), that's one awful location, mid-block on the wrong side of Highland. Noteworthy: The sellers paid $1.450m in March 2005.
  

That's a tough group, but if marginal listings help define the market, we've got to watch them.

The Race to $2.1m, and Then...

Several weeks ago, the "lower end" of the Tree Section's $2m+ segment saw much new construction clustering around $2.3m. For instance, at the end of July, there were no new homes under $2.3m, and at the end of August there were 3 under $2.3m.

Now there are 5 new construction listings under $2.2m, and another at $2.249m.

Could this be the beginning of the builder-initiated price movement we've been watching for? (In "Quitter – Bellwether," just last week, we said it seemed that no such movement was happening. What a difference a week makes.)

This new clustering is partly the result of 3 price cuts this week. Let's look at everything at $2.249 and down to $2.0m – remember, these are all new construction (click any address for details):

• 2105 Oak (5br/5ba, 3250 sq. ft.) began at $2.349m in May. Now at $2.099m (-$250k).

• 3104 Pacific (5br/5ba, 3200 sq. ft) remains at the $2.149m where it started in late July. (They just pulled a bogus re-list.) No price cuts yet, but MBC noted in this story the price-cutting ways of nearby new homes in 2006.

• 1417 Elm (5br/5ba, 3000 sq. ft.) [pictured] hopes for $2.175m; this listing began partway through construction, in late August; the pics are better now.

• 648 35th (5br/5ba, 3600 sq. ft.) began at $2.450m on July 9, but has already cut quite substantially to $2.195m (-$255k in 100 days).

• 2309 Pacific (5br/4ba, 3200 sq. ft.) is at $2.195m, down $104k from the start in mid-May. (What's with the garish, huge plastic sign in front?!?)
  

• 1901 Poinsettia (5br/5ba, 3200 sq. ft.) is at $2.249m, down $250k from its start in late August. (This one has issues, as noted by this MBC story.)
  

Of all the homes above, 648 35th stands out as the most aggressive. MBC hasn't yet toured the home, so we don't know why it has lingered nor what its issues are. (We're told the interior is uninspired in parts. We invite your comments.)

Here, it's not news when we see a new listing in the Trees at around $2.5m – but it is news if the builders/sellers are acting like they want to make a deal.

Let's be honest – anyone who's now offering a house at $2.2m or so will be ecstatic to get a sale at $2.1m or so. Better to do a deal than hunker down for the winter, accumulating DOM. And as they sell, guess what happens to the remaining listings?

Outlooks Getting Gloomier

From time to time MBC checks the broader housing market's pulse by seeing what the experts are saying. (See "Getcher Predictions Here.")

A couple weeks ago, the California Association of Realtors set this party line:

Tighter credit standards, affordability concerns, and a continued standoff between buyers and sellers will contribute to continued weakness in the market going into next year.

Specifically, CAR expects a 4% decline in the statewide median price in 2008, after a 3.5% increase this year. This qualifies as optimism, we suppose: 2007 and 2008 are a wash, so 2009 is just 2006.

Monday, a more bearish assessment by Goldman Sachs suggested that homes in California are "overvalued" by as much as 40%. Money quote, via the Bloomberg story:

Prices in the state "have proven surprisingly resilient, given the severe curtailment of credit availability and rising unemployment,'' the analysts said in a note to investors. "However, we believe that a downturn is imminent.''

As you scroll through various assessments of the market, like this LA Times story last week, it's increasingly common for folks to call the bottom for 2009 or so. (Psst! Remember, 2009 is just like 2006, so we're not talking about a big decline!)

Another respected Wall Street analyst, Ivy Zelman, thinks prices could keep falling till 2010 or 2011. Her money quote, again via Bloomberg:

We'd be better off if prices corrected all at once. It will get worse before it gets better.

Oh Ivy, that's rich. You know as well as we do that home prices don't correct magically or "all at once," but through the slow and grudging, step-by-step, highly emotional actions of home sellers.

And let's be honest – as a group, home sellers are among the least sophisticated of all financial market participants. We're talking about regular folks who happen to own a home. The only thing they care about in selling is not selling for less than they absolutely must. That's why these things take time.

Of course, none of the commentary quoted above is specific to MB. (That's your job, readers.)

But there is this looming threat of a writers' guild strike, and resulting paralysis in the entertainment industry. Our high-flying RE market benefits from the funny money of the industry, so a stoppage there could put a real dent in activity here.

Uh-oh, was that a prediction? We promise, it's worth every penny.

Unique Ain't Always Great

Few listings have entered the Tree Section market at the level of $1.9-$2.0m recently. So when a new one, 2404 Palm (click for details), came on this week at $1.895m, it drew some notice. Busy open houses testified to the hunt for value that's still going on beneath the surface of a quiet market.

MBC is guessing that the average visitor walked away shaking his or her head, disappointed and a bit awed by the strangeness of this home.

You'll fall in love again with the standard Tree Section home layouts when you've seen Palm's unexpected and peculiar 3-story design. Enter on the level featuring the kitchen and dining room, and, if you're not to be dining, you'll be going up to the master, or down to the living room and three other bedrooms.

For those of you keeping score at home, the master bedroom is separated from the kids' rooms by two stories. Families with kids of any age are going to find issues with that fact. (And if you don't have kids, why do you need 3 basement bedrooms?)

The basement-level living room is light and airy, thanks to the three stories' worth of space cleared out above – which is nicer than we just made it sound. It's kind of grand, if awkward.

Ughhh, but those bedrooms. Sunken, dark. Two have little windows looking out on the foundations of the neighbors' homes. One, at least, opens to the, achem, back yard. (More on that in a minute.)

As the rather scarce and awful listing photos show, there's an overall 80s/contemporary vibe, but there has been some spot remodeling, thankfully including the kitchen. The master is actually great, bright – has a whole floor to itself, in fact.

Warning: the flyer is a liar when it speaks of a "Beautifully Landscaped Backyard." They mean the few new vines and impatiens bordering the 10-foot-deep concrete patio.

At $1.895m for 4br/3ba and 3100 sq. ft., the price for Palm makes sense only on paper. They're starting with PPSF and the location bonus – a great street – but not adjusting enough for the house itself.

In reality, there's no such thing as a $1.9m buyer; buyers in this range are looking at spending up to $2.25m or so if they can get the right deal. And at $1.99m, they have three bigger, better options:

• 2311 Poinsettia (5br/3ba, 3400 sq. ft.) – $1.935m (down from $2.149m)

• 2509 Poinsettia (5br/4ba, 3300 sq. ft.) – $1.999m (paid $1.98m 2 yrs. ago)

• 561 35th (6br/5ba, 4350 sq. ft.) – $1.999m (down from $2.299m last year)

The abundant strangeness of 2404 Palm seems likely to mean it'll be with us a while, and/or that we'll see some price chops.

MBC is always aware that, in predicting, we risk being wrong. (Hey, even 844 11th found a buyer!) But, whew, Palm is such a head-scratcher, we can't imagine someone walking in and saying, "I must live here!"

It Only Takes One Buyer

By far the longest-running listing in MB (west of Sepulveda) went into escrow this past week. The home at 844 11th in the Hill Section first hit the market April 26, 2006, and 540 days then tolled before a purchase contract was signed.

In the case of 844 11th, the collective shrug of the market to a large, clean Hill Section home was understandable – this home is just not for everyone.

Large: How about 5br/4ba and 4500 sq. ft.?

Clean: The style of the home is stark and linear – MBC once called it "imposing" and "modernist" – and many rooms are large, and minimally furnished. (Built in the 80s, this was updated recently.)

Not for everyone: The house is all straight lines and right angles. You may not realize how soft and curvy the average home in MB is until you see an architectural vision like this one fulfilled.

And there are some surprises. On the downside, a smallish and narrow kitchen hidden away from the main living spaces – the opposite of a "great room" feel. Also, a peculiar, trapezoidal dining area with a cramped entry. On the upside (we think), a hydraulic lift allows a third car to park in the two-car garage.

It took some time to work out a price for this one. (Everything took time.) To start, 11th was at $3.175m. For the last several months, it has been at $2.695m (-$480k). We're eager to see what the willing buyer worked out with the willing seller.

This one hung around forever, but, as a home seller, you don't need everyone to buy your house – you just need one buyer. At long last, these sellers seem to have a live one.

A New, Unique MB Event

What do we love about MB?

Sometimes, it's the unique community stuff:

• Christmas Fireworks!
• AVP
• the ancient paddleboard races, still finishing at the pier
  
• Surf Festival w/ the lifeguard competition & team volleyball
• Hometown Fair
• Local 5ks and 10ks (for the fair & schools)
• Summer Concerts at Polliwog Park
• and 100 other things that can't fit here right away...

Now MB is adding a new thing that we think will take off. It's the "Halloween Pumpkin Race" (click for details) inspired by a local event in easternmost MB, coming to downtown for the first time next weekend (Sunday, Oct. 28, 1-7:30pm – yes, almost 7 hrs.).

Think Pinewood Derby meets the Rose Parade. Er, how about the Doo-Dah Parade? Either way, it's partly a race and partly pageantry.

What's not to love?

A Marginal Listing, A Decent Rental

Here's the situation: It's Spring. You've got a home 2 blocks from the beach. You're ready to sell. You sign up one of the big-name local agents. You're on the market by early May. It's only a matter of time before you're in escrow, right?

Alas, this scenario hasn't played out as expected for the sellers of 117 Highland Ave., a South End remodel with 3br/2ba and 1500 sq. ft. (Click address for details.)

Now, after six months on the market, the house is for rent (for $4,500/mo.). Oh, it's still for sale, too, though the sign is down. If you're inclined to rent the house, the phone number you'll dial is actually for the listing agent.

The misfortunes of 117 Highland parallel those of a new home at the opposite corner of our region (west of Sepulveda), 2709 Oak, discussed here yesterday.

We know why buyers haven't leapt at the chance to purchase 117 Highland:

• it's smallish;
• it was remodeled, but not recently;
• it's on a half lot, no yard, on a somewhat busy street (Highland isn't as bad down south);
• one bedroom is impossibly small and another is tight, too;
• the upstairs living space, while it kinda works, is strangely chopped diagonally; and
• curb appeal is limited – in fact, the home probably needs an extensive remodel.

Most of those problems could be overcome with a change in price. But Highland hasn't moved much. It began at $1.449m, and slid slowly down to $1.365m ($920/sq. ft.).

The owners paid less than $1m, when the property address was 223 1st Pl., 4 years ago ($929k/Nov. '03). Without looking up the loans (i.e., a HELOC scan), we can assume they have some room to negotiate, but that the sellers have simply preferred not to "give the house away."

A few months ago, the owners moved out, and the property was very nicely spruced up and staged afterward. (An art that is becoming vital in this market.) And of course the property has been re-listed a few times to hide the history. (Current "DOM" = 37, CDOM: 170.)

But none of those tactics worked. In the end, Highland is a marginal property, and marginal listings are in trouble all over – signs of inflated prices and a pickier buyer pool.

Just like with the new home on Oak, potential renters win in this story. You get a decent home without the albatross of owning a depreciating asset that would be tough to unload in almost any market – that difficulty only now becoming apparent.

Quitter - Bellwether?

After more than a year on the market, the new construction at 2709 Oak is gone.

The house is still there, of course, but the agent's signs are down, it's off the MLS, and who knows what's next. We're guessing it went rental, as the home was offered for a time at $8,500/mo. (See "Just Rent It.")

New construction nearby at 2609 Oak similarly vanished from the MLS in July after 425 DOM. We also guessed rental there.

2709 Oak was listed at $2.299m for 5br/5ba, 3600 sq. ft. The listing began at $2.395m on Aug. 15, 2006, so it never took big price cuts from there. In parallel, 2609 Oak started at $2.399 a few months earlier, and never cut below $2.299m before quitting.

2709 Oak was (is) quite lovely, a spacious feel, bright, with big kids' bedrooms (no sardine cans here) and a bonus basement/media room. We didn't like the stapled-on stone, but it could be overlooked. There was just one un-fixable problem – location – and one that apparently was too hard for the builder to fix: price.

It's difficult to imagine that a sale below $2.3m was going to cause a loss. The lot was purchased for $920k in April 2005. That leaves almost $1.4m to cover construction, costs of holding and sale, and profit. Construction costs at $250/sq. ft. would have been $900k, so there might have been as much as a half million dollars' worth of wiggle room.

This cancellation is partly a story about Oak, but it's also about unwanted, overpriced new construction. Demand is slow in the Tree Section $2m+ segment (see, "Measuring Activity in the Trees at $2m+"), and obviously slower in poor locations. What is supposed to happen to all these new houses?

We've been watching, mostly in vain, for builders to take the first step and adjust prices downward. It's only logical that they would, but we don't see it much. (Not completely in vain, that is – we've seen some new homes near $2m take $100k-$200k off to sell, and some list prices are down by about that much.)

Another option is to just get off the market. As we all discussed in the "Just Rent It" thread, pressure to produce some income (especially from lenders) may force builders to the rental option, at peril to the future value of the homes. By renting it out, you lose the cache of "new" construction when the time comes for a future sale, and, if the market dips, you lose even more money than you might have by selling now at a discount. So it's a desperate move to quit.

One to watch on Oak: A slightly smaller new home at 2105 Oak (click for details at agent's site) is still active, now at $2.099m after starting at $2.349m in May of this year.

Another quitter on Oak: 3013 Oak is a different kind of case, as it was a small remodel, and only tried the market for 40 days. Its dropout this week mainly tells us that Oak is a challenging location, even on the "right side" (i.e., odd numbers, not abutting Sepulveda). But you knew that.

Back to the big question: What is supposed to happen to all the new houses – more than 20 in the Trees – priced over $2m for which demand has, apparently, softened so badly?

------------
UPDATE: One of the higher-priced new homes in the Trees, 1821 Walnut (click for details), cut its price today by $150k, now at $2.599m.

Treasury Sec. Goes Bearish

The Bush administration is not known for its downcast assessments – quite the contrary.

So today's remarks on housing and the economy by Henry Paulson, the treasury secretary, are indeed "sobering," as the Wall Street Journal puts it. Paulson said (all emphasis below is added):

The ongoing housing correction is not ending as quickly as it might have appeared late last year. And it now looks like it will continue to adversely impact our economy, our capital markets, and many homeowners for some time yet.

How did we get here?

The housing correction has its roots in an eight-year period of exceptional home price appreciation which was fueled by an increased demand for, and an abundant supply of easy credit. Speculation also played a significant role, as the share of buying activity by investors or individuals buying second homes more than doubled from 2000 to 2005. Homebuilders responded to the extraordinary demand for more and larger homes as if it would last forever.

It seems we all agree on that.

What's on the horizon?

[D]espite strong economic fundamentals, the housing decline is still unfolding and I view it as the most significant current risk to our economy. The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth.

Uh-oh. It's widely acknowledged that the one thing that poses the greatest future risk of major home price declines is the possibility of a recession. (A word not mentioned in Paulson's speech.) Here, the Treasury Sec'y is saying home price declines could lead us to a recession, which in turn could lead to home price declines, which in turn.