A terrific, large home hit the market in the Tree Section today at $51k below its purchase price from almost exactly 2 years ago.
3011 Valley is a true charmer with 4br/4ba and 3250 sq. ft. (Sadly, the listing currently has only one pic.) It starts at $1.849m, a tick below the $1.9m purchase price from April 11, 2006.
Of course, the home is on Valley, and buyers aren't generally swarming to homes with location issues these days. That's a reason to be aggressive on price. Whatever the sellers' reasons for getting out now, they appear to recognize that shooting for a big payday would only delay the process.
Don't get us wrong, that's still a lot of scratch for a home on a fairly busy street. It could sit despite the sellers' willingness to take a loss (or perhaps to stick a relo company with one).
But the start price reflects a realistic assessment of the state of things in MB today – flat to negative appreciation over 2 years for homes with issues, such as the issue location presents here.
How Far Up or Down Will the MB Median Price Be in 3 yrs.?
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86 comments:
MBWatcher - I am consistently AMAZED at how quickly you get these posts up! I just saw the listing, and thought "ah, now here's something MBC should profile." I came to the site, and BAM! There it is.
Agree with your assessment. I haven't ever seen inside but, the location issue notwithstanding, it looks like a very nice home.
Interesting post MBW. Continuation of a trend or just another one off (which I think adds up to about 30 one offs)
On another note, 1821 Walnut has fallen out of escrow. Our realtor just told us that.
Nice Post.
Appears to be a nice home. However, it was built in 1998. Depending on how dated it is, it might still be overpriced.
Mookie,
Thank you for the update on 1821 Walnut. Kind of had the feeling that was what happenned.
Any news on 757 30th? These two are missing from MLS inventory.
Mookie never seems to learn that his non-stop barrage will not get him the house of his dreams. He mentioned his realtor, I will pray for the poor soul who represent him at Martys this Sunday.
Mookie- 30 one offs. Could you provide those 30 one offs? Interested, as there seem to be much fewer than 30.
It's been on most all real estate blogs today, but the hotpads.com site is quite slick if you haven't seen it and feel like wasting some time mousing around. They have a nice rent vs. buy calculator where you can adjust the inputs for each house. It won't go out past the length of the mortgage (a deficiency...). The map of MB shows about 15 pre-foreclosure properties, 5 REOs and a handful of auctions.
The International Monetary Fund told us last week that this is the worst financial crisis since the Great Depression.
MBW just provided stats of the worst 1st Q west of Sepulveda in 8 years.
Hopefully this isn't just the beginning.
6:50 - I have resigned myself to the fact that I won't be able to pick up a Strand property for what I can afford, so you are right. That being said, my quarter jar is filling up and I now have a deal with my landlord to do my own gardening and he takes off another $50 from my rent. Between that and me fixing my own toilet, I now save $100 per month and it goes straight to the walk street kitty.
Now, IF 1821 Walnut was the house of my dreams, I could certainly get it for about 400k less than what it originally listed. IF 2100 Flournoy was the house of my dreams (I will admit, I did like it), I could have bought it for $450k less than what it was originally listed. IF 916 9th St was the house of my dreams, I could go buy it today for $400k less than what it was originally listed. IF 911 Duncan was the house of my dreams, I could have bought for $580k less than what they originally listed. I could go on an on, but u get my point.
Let me pose a question to all - I theorize that homes in MB are already down at least 10-15% in value from the peak. I say this because most sellers are still listing homes based on perceived values of where the peak was and where their neighbor sold their house (obviously a subjective comment). Currently, according to MBW's records, it looks like the approximate sales price of most current closed sales are coming in 10-15% below the original list. So with that in mind, I submit we've already seen an approximate 10-15% decline from the peak of where homes in the best of conditions and perfect timing could have sold. Hence, we are down 10-15% This actually bodes well for bulls as that means we are closer to the bottom.
I know many people want to go off median stats that show prices still rising, but think outside the box on this one and share your thoughts.
I meant 6:59... sorry
share your thoughts
I think so far prices may be down 10-15% on a few of the least desirable homes. If that's what you're willing to settle for, have yourself a field day.
Mookie,
The arc of the drop in our area is relatively shallow -- following an expected lag. As you know, affluent areas are frequently the last to show drops. Concur with your 10-15% drop from peak asking as MBC's data seems to suggests, as I wrote before in recapping MBW's 2007 closeout:
http://mbcon.blogspot.com/2008/03/closing-books-on-2007.html?showComment=1205303040001#c2795183292478787332
Take the Trees < 2M. 25 of the 36 sold listings took a price reduction, which translates to 70% of all homes sold in the Trees < 2M. Of these 25 homes which sold at a reduction, the average drop in price was 7.3%. 8 of 36 (22%) sold for a reduction of 10% or more from asking. The mean price drop amongst these 8 with significant price reductions was 15.9%
For the Trees 2M+, there were 20 price reductions out of 31 sales, 65% of that entire category. Of these 20, the average reduction was 9.1%. 7 of 31 were reduced by 10% or more. Of these 7, the mean reduction was 16% In this subsection of the market, there is a hint of fewer homes sold at asking or above as the year 2007 progressed.
For the Hill, 15 of the 19 sales total took a reduction -- that is 79% of homes sold on the Hill. The mean price reduction from asking was 12.3% across the 15 homes that took a reduction. 7 homes (37%) closed for a 10% or greater reduction from asking for a mean reduction of 20.9%.
For the Sand, 28 out of 45 homes took a price reduction -- 62% of homes sold in the Sand. Of these 28 homes, the mean price reduction was 8.4% 9 out of 45 (20%) homes took a greater than 10% reduction for a mean reduction of 15.9%
---------
My expectation is that we'll be at somewhere b/w 30-40% below the peak before we bottom out. The macro-economic picture gets gloomier and credit remains very tight. Given the acceleration of the Case-Schiller locally, the fall-out will likely push beach-ward in the forthcoming months.
Krugman's P/E curve is worth keeping an eye on:
http://krugman.blogs.nytimes.com/2007/12/20/charting-the-housing-bubble/
When the NAR hits the news with a low number, it's worth paying attention!
Home sales index hits record low
From Reuters
April 9, 2008
Pending sales of previously owned homes fell a more-than-expected 1.9% in February to the lowest level on record, according to a report from a real estate trade group Tuesday that pointed to more troubles in the beleaguered housing market.
The National Assn. of Realtors index, based on sales contracts signed in February and seen as a key barometer of future housing sales activity, fell to 84.6 in February from 86.2. That was the lowest reading since the trade group began tracking this data in 2001.
Compared with a year earlier, pending sales were down 21.4%, according to the group.
I just got a new listing report for 468 33rd Street. Am I hallucinating or hasn't this been listed for quite some time now? If so, how are these realtors getting around the new MLS rules?
Mookmeister, based on your theory you should be able to pick up 132 2nd for a paltry 5.5 mill. I say go for it. As for AH7, as Ronald Reagan used to say, "There he goes again."
Anon7, in your 12:32 post you said: "The arc of the drop in our area is relatively shallow -- following an expected lag." By "our" area did you mean Redondo? You've repeatedly made it clear that you don't live in MB and that your obsessed with OUR area and not YOUR area.
8:30am - That is hilarious. I've always wondered what was up with that.
Anon7 is a RB ophthalmologist and Manhattan Beach homeowner wannabe who, from his rental apartment, fashions himself to be a Manhattan Beach real estate "expert". Go back to your eye charts. If your sole source of real estate info is this blog, then you have earned your title as chief propagandist for MBC's cult.
First, it shouldn't need explaining but dropping list prices is not the same thing as declining market value. Sellers are often the last to accept the fact that the market has flattened out. Even then, this only becomes an issue for homes that would not be classified as premium in quality or location.
Recent example: 2312 Grandview. This home, on an oversized lot in an A+ location, was being offered for $1.5 million. When the builders wouldn't pony up, it hit the market and quickly got bid up to over $1.6 million.
Meanwhile, there are 5 homes currently under contract in the Tree section at $2.7 mil or higher (of which only three appear on the MLS).
As a homeowner wannabe, I love how you continue to propagandize for your cause. Given the acceleration of the Case-Schiller locally. Wrong - there is no local Case-Schiller index, which is a national/regional computer model. All you've got is cherry-picked anecdotal evidence, but I guess that's better than trying to explain actual data like increasing median home sale prices in Manhattan Beach.
Are you sure you didn't get that MD on your wall from Grenada (or Kinko's)?
8:50 and others: Your arguments, however sound, get completely lost when your posts are filled with personal slams and such. It doesn't have to be this way, as one can see on the other real estate blogs that many of us frequent. Why get so personal and emotional? We're talking about dirt and bricks here, not religion or politics. Perhaps I'm just wasting my breath though...
8:50 is on the defensive so he/she must resort to childish name calling...isn't you response also cherry picked anecdotal evidence?
so if you are so convinced that your local market values are holding steady for the long term, why do you verbally lash out at others think about your property values are in a downward trend?
Mookie/Anon7 and Anons after 8:50- 8:50 is dead on. While he/she didn't have to resport to name calling, Mookie and Anon7 have engaged in the name calling as well.
I have asked a few times for someone to compile data that shows the same house being sold for less than what it was purchased for. Bundy came up with 3-5. Others came up with houses that sold for more. So not sure where there are 10-15% price declines as Mookie so pints out.
The Case-Shiller index which tracks same home sales is only as 8:50 suggested. It is all of LA.
Maybe MBW can put together a list of solds in the last 9 months and compare that to what the owner paid prior. He attempts to do it with the spreadsheets, but there are very few that show what the prior owners paid.
Until then, I will keep reading these meaningless posts by Mookie, Anon7 and not sure what happened to Bundy, with little credibility.
susan m: I don't think those homes with price drops are "the least desirable" but quite representative of what MB has to offer.
MBW, I know this is completely off-topic, so if you edit me, I completely understand: can anyone recommend someone that baby-proofs houses in MB at reasonable price? Thank you.
9:32, I cited anecdotal evidence to make the point that you can pick and choose your data points to arrive at your predetermined conclusion. This blog focuses on the negative and attracts a pessimistic cult following, such as Anon7 and Mookie (aka Bundy).
For anyone interested in actual meaningful data, here are the median sales stats for all MB single family homes sold over the past 2+ years:
1st Half '06 - $1,790,000
2nd Half '06 - $1,687,500
1st Half '07 - $1,799,500
2nd Half '07 - $1,805,000
1st Half '08 (to date) - $1,825,000
There, cult losers, is that enough non-cherrypicked data for you? As I've said before and I'll say again because the 'Cult' is so slow to comprehend, I am not saying home prices here are appreciating. But how can you look at this data and say that we've seen a 10-15% drop?
The fact is, some homes have dropped (Terri Polo of "Meet the Parents" is going to take a big hit on her '05 purchased home which sits right on busy Pacific). Meanwhile, others have appreciated significantly. Depends on location, quality of the home, amenities, view or no view, etc etc etc.
9:46am - bundy is mookie. one in the same.
Anon 9:23, Thanks for stating; I've repeatedly wondered what's up with that.
Sorry 10:03, I don't believe it. Home for home, location for location, prices have dropped. Anyone who has watched the local market can see that.
Again, 8:50/10:03, your posts are filled with interesting information that could be the basis for intelligent discussion. But why throw in the "cult losers" comment? It detracts so much from what you're saying. (FYI - I agree that the name calling comes from the so-called bulls and so-called bears, but can't we just stop it? )
Now back to the numbers....
Anon 10:14, the reason I throw in things like "cult losers" is because
(a)the cult does not accept facts if they contradict their pre-formed bias, always the hallmark of a loser, (see Anon 10:12 above),
(b) they regularly propagandize on this site, including regular posting of deliberate misinformation about the local real estate market and individual properties for sale (just ask the sellers of 742 27th who actually had to commission a survey of their property after misinformation was posted here about their lot line),
(c) they try to slander local realtors, both generally and specifically by name because, in their tiny little world, they blame a conspiracy of realtors for their inability to afford a home here and
(d) I believe in calling a spade a spade.
By the way, do you really think this site aspires to "intelligent discussion?" I have my doubts.
Susan, spoken like a true MB snob, "prices may be down 10-15% on a few of the least desirable homes. If that's what you're willing to settle for, have yourself a field day."
Tell me, does the industry not spill into your ocean? Does the traffic not congest your streets? Do the airplanes not pollute your skys?
How is the air up there where you reside...or should I say, please share your happy pills and blinders with the rest of us.
10:44am - Your continually use of the word "your" tells me that you are not from MB. Why are you interested then? Planning on moving here and can't afford it?
continually=continual
Sorry 10:12 you are wrong. Here are a couple of houses that have sold for more than purchased.
2615 Valley- Sold $1,475, bought in 4/05 for $1.229.
637 13th- Sold for $1,335, bought for $1.1M in 11/05.
Both homes bought at the top of the market, yet sold for more. Granted 2615 Valley had a remodel.
So, not sure where you get your home for home, location for location, prices have dropped.
I'm not saying that some prices haven't dropped, but to make a blanket statement that prices are down 10-15% is ludicrous. I'm neither a bear nor a bull. I sold my house in the fall, so I am waiting, watching, looking like everyone else to see what is going to happen, if anything.
So until someone shows me real data, that prices have fallen, other than the 30 so-called one offs that Mookie has brought up, I will continue to look for our next house. Albeit, most of the prime locations are still selling, albeit at a slightly slower pace.
8:50am - perhaps dropping list prices is not the same thing as declining market value, but it sure is close when it happens on a broad and regular basis. Real close to the same...
So why split hairs? Admit that we are declining a bit.
And the bulls need to quit relying on useless median stats for this small market. Get some better data because growing anecdotal and one-off data holds up much better at this point. At least it's representative.
Anon 10:37, lighten up and get a real cause will ya!
anon 11:19 -
late '05 was not the top of the market for MB. I consider it late '06 to early '07. We had a lot of inertia. I would expect homes bought in '05 to still be sold at a profit, for now.
468 33rd came on last December at $3.495m, as you correctly recall. That was a 26% markup ($700k+) over the purchase price 18 months prior – May 2006. Here's the first story on that home:
http://tinyurl.com/63gbo4
It canceled last week and now has been re-listed.
I've already given up on Mr. MLS's supposed tough policy toward bogus re-lists. There's been a small flood of them recently and at this point it's not worth debating – they're not policing this at all.
The seller, a successful pro athlete, presumably has plenty of financial flexibility to wait for a buyer to come to him.
Anon 11:25, thank you for proving my point about the bear "cult" on this blog. You're right, let's not look at median sales stats for all reported sales throughout Manhattan Beach, let's just cherrypick certain sales and call that "representative."
A loser is a loser - no other way to characterize the typical kool-aid imbiber in MBC's cult.
Oh, and just so you know, I was incorrect in my earlier statement that there are 5 Tree section homes priced at $2.7 mil and above currently in escrow (only 3 on the MLS). The actual number, as I now hear through the grapevine, is 6. But these sales apparently are not "representative" so we'll just ignore them, right losers?
I'm a loser? I'd laugh hysterically in your face about that comment if we met.
By the way, escrows of homes priced above $2.7Mm means absolutely nothing when we are talking about market direction. There could be 1,000- $5MM escrows and prices could still be falling.
Bulls are so clueless it's just ludicrous.
The "cult" thing is played out, Huggy. Somehow it was cuter when you said "cult of the clueless." Now it's just over. And "loser" is rapidly aging.
You'll need to work harder at disagreeing, even name-calling, without these words. We all know you'll come through.
You're right, 11:59, let's not look at high-end sales, let's look at median sale prices that cover all sales in Manhattan Beach. Ooops, no help there either.
11:59 said I'd laugh hysterically in your face about that comment if we met. Somehow, I envision you laughing hysterically right now all alone at your keyboard. Something tells me you're unhinged.
MBW - "cult", "loser" both adhere to federally-mandated truth in labeling laws. Soory, don't want to violate any federal prohibitions.
Where can I buy one of those mystical grapevines?
or better yet Huggy, go back into hiding!
9:32 Unfortunately I do not have a link but there is an article on home prices in Manhattan, New York City in this week's Barrons. They interviewed Jonathon Miller who has studied the Manhattan market since 1989. In Manhattan this past quarter median prices are significantly higher but sales volume is down and inventories are rising on a seasonally-adjusted basis. Miller believes that median home price is lagging indicator and that inventories and sales volume are leading indicators. Miller believes that median prices will start moderating based on the inventory and sales data.
This analysis rings true in my experience. I buy a new place on average every four years since 1987. If I cannot get my price I will plan to stay in the current location longer. I believe the people selling and buying now probably have some life changing event occurring -perhaps a job relocation or retirement or selling a business or even receiving an inheritance. I do not think that median prices will fall steeply, but I believe pace at which median prices were rising will slow significantly.
Good points, 1:14. Here's the tinyurl and the whole article (a brief):
http://tinyurl.com/5y2qhd
Manhattan Transfer
Real Estate Feeling the Pain
Edited by ROBIN GOLDWYN BLUMENTHAL
PRICES IN MANHATTAN'S STUBBORNLY BUOYANT REAL-ESTATE market hit another record in the first quarter, but don't hold your breath. So did the decline in the number of sales from the year-earlier period, a sign that, according to one analyst, the market may finally have turned down.
["The tightness of credit and concerns about the financial-services sector and employment are causing people to put purchases on hold," says Jonathan Miller, president and CEO of Miller Samuel, a real-estate appraiser and author of the Prudential Douglas Elliman Manhattan Market Overview. Jobs in Manhattan, the financial-services-industry mecca, are seen falling by at least 20,000 in the next two years.
Though the median price of a Manhattan apartment rose 13.2% in the quarter, to a record $945,276, as the mix shifted toward higher-end properties, the number of sales dropped 34.3%.
Too, inventories from the fourth quarter to the first, which typically rise by about 8% because of seasonal factors, rose a whopping 20.7%, says Miller. That's the largest rise he's seen since he started tracking the numbers in 1989. Because lower sales volumes and higher inventories lead prices, Miller expects prices to moderate over the next year, especially as a recession looms.
"The mood is very negative," says Miller. Seller, be warned.
Congrats 11;19 for getting the Democrat of the Day Award...
Your quotes:
So, not sure where you get your home for home, location for location, prices have dropped.
(Might I suggest you check the monthly / quarterly spread sheets furnished by this site for all the proof you need.)
your quote:
"I'm not saying that some prices haven't dropped,"
...what are you saying Dem.?
your quote:
"I'm neither a bear nor a bull."
...this was a shoe in statement for the award btw.
your quote:
"So until someone shows me real data, that prices have fallen, other than the 30 so-called one offs that Mookie has brought up,"
...so you want data, besides the data, right?
- Speechless.
MBW, I found this story very interesting. When I looked at houses last spring, there was nothing in the less than 2 million range that was ok for us (too small, not nice home, poor location, etc.). That doesn't seem to be the case this spring.
1:29- Now I know why people call idiots on this site. B/C you are one. Why does one need to be a bear or bull. Those spreadsheets provide little info. As I said, homes have sold higher and a few homes have sold lower.
Good to see you can offer so much info though. I'll continue to use the available info to make money in real estate, and you will continue to blog and think everything is a disaster. Keep up your negativity and you will never be anything.
Sorry you are a Bush supporter.
1:29 Now that you've opened Pandora's box, you are the worst kind of Republican, the middle class wannabe that doesn't even own a house.
OK w/ that I'm closing Pandora's box. There are about 1m other sites for political debate.
Just want to point out the vicissitudes of compiling small data sets.
Here's the data I posted above, based on the MLS as of a few days ago:
1st Half '06 - $1,790,000
2nd Half '06 - $1,687,500
1st Half '07 - $1,799,500
2nd Half '07 - $1,805,000
1st Half '08 (to date) - $1,825,000
I noticed, however, in looking at this year's paltry sales to date that there was a big gap between sales below $1.6 million and sales above $1.8 million. A few more low-end sales would make a dramatic difference in the median sale price for this year.
Well, it happened. A few more low-end sales did, in fact, close the past couple days and the new median sale price, year-to-date, is now $1,575,000.
Just what the doctor ordered, right bears? Well, don't get too cocky, there are now 7 (yes, seven) Tree section sales pending at or above $2.7 million set to close in the next 60-90 days. Nonetheless, this is an object lesson in trying to make something of small data sets.
I will try to restrain my keyboard until we have more data for the first half of this year. Care to join me, bears?
Oh, by the way, Huggy was a top producer at his/her firm last year, yet not one congratulatory note on this blog, even from those who profess to know who Huggy is. Where's the love here?
Good point on the small data issue.
Does anyone know when 3216 Alma is set to close? Seems like it has been in escrow 6+ weeks now.
The bulls on this blog are probably current owners, brokers or builders.
Question to the bears:
You clearly have an interest in MB real estate and I assume you want to buy and live here.
When will you buy?
What will be the market signal?
How will you know the time is right or the house is right?
If the market or economy is so bad that things are going to crash, how will you personally avoid that crash in order to buy at the bottom?
Will you have a job and income to afford a house at the bottom of the economic bucket?
I'm a current owner that is certainly bearish in the short term but bullish over the long term. I certainly don't have to attempt to prop up a market with rhetoric.
3:02pm - I have asked that question before of Anon7 and have NEVER received an answer. I figured it out myself:
When real estate is cheap enough for them to afford it!
2:46 Quick question. How does one normalize the median price statistic between dated, remodeled and new construction? Reason I ask is it seems that most (if not all) of the seven pending sales above $2.7M that you referred to are new construction. It seems that separate median prices should be tracked so that one can more accurately gauge what is going on. If a builder buys a property for $1M and puts another $1M into it, should we say the median price has escalated by $1M. The answer isn't obvious to me. What are your thoughts?
Exactly, 3:02. Just as a rising economic tide raises all boats, an ebbing tide will surely lower all boats.
Anon7, for example, is an ophthalmologist. Maybe his clients' incomes will be affected by a recession and they end up cutting back on their eye exams (say, once a year instead of every 6 months, for example). Wouldn't that make it harder, rather than easier, to purchase in the future?
That's why I've never understood the bears cheerleading for economic chaos. Of course, the economy will do whatever it will do but the apparent glee with which Anon7 posts his NY Times copy-and-paste articles is puzzling, unless he's sitting on a big slug of dough and isn't personally affected by the economy's direction.
Anon 3:15, I don't hear chears for economic difficulties. Pointing out what's going on in the broader community isn't "chearing" it on, but neglecting it can cause lots of problems for people.
Comment on 3:07. Neither bull nor bear here, just trying to understand the data. I would tend to agree with an earlier post regarding NYC that suggested median price tends to be a lagging indicator. In a hot market builders and speculators will put money into properties to turn them for a profit; therefore, there would likely be a higher percentage of new construction for periods of time where prices have been appreciating for a while.
Conversely, near the bottom of a market that has been falling for a while, when speculation is low, there would be a disproportionate share of dated homes until builder confidence rises. At this point in the cycle the median price would say prices are falling even though they are actually rising.
This was why I mentioned that it might be nice to have a separate median price that is tracked for new construction versus dated homes. I tend to prefer the C-S approach, though it too is deficient since one cannot get the statistic for the "west of 1" region of MB. It seems the closest data we have are the tables provided by MBW that track the history for a given address.
Any comments, MBW?
3:49 - take a look at the 2007 sales spreadsheet (top-right corner, PDF download). There I did break out last year's sales by condition. I didn't calculate medians because the resulting subsamples are so small, but this would give you an idea how it might look.
I was wrapping up Q1 2008 and thinking about presenting it the same way.
Overall, I dislike medians. One of many terrible measures that just don't convey much. I am always looking for interesting ways to present data but I find few that work nicely, especially given our always-small numbers.
Thank you MBW. Let me study this a while. Do you know if C-S index removes sales where significant improvements have been made?
3:02:
I think the question could be more fine-tuned: what are first-time buyers versus people with equity waiting for?
Well, maybe "first-time buyer" and Manhattan Beach are incompatible in a single sentence without the words "nearly impossible". For those of us who don't have access to large money gifts or trust funds, the prices here are just too much.
As a first-time buyer blessed to earn a solid income (a shade under 450K), I have been waiting patiently, and saving--maybe in vain, but I certainly am not going to hang a 10,000K/mo. interest-only nut around my neck. This run-up has left me with no option but to wait and save, as I choose not to "just jump in" like my predecessors did. My predecessors never saw a run-up like this one, that is a fact.
I think prices will moderate relative to local income. Either that, or local income will just continue to skyrocket to the moon. Either way, it will be interesting to see what will happen.
I am curious as to why someone with equity or LARGE cash reserves would wait; obviously some aren't given median home prices. Looking at absolute number of sales, however, it does seem like those people are running out.
3:02pm, we have rented in MB since we moved here from boston 3 years ago. here is the logic.
we were able to lease a 4yr old 5BR house in the gaslamp with tons of bells and whistles. it's a great house, in a great neighborhood on a street where the comps are well above $2.5m. our annual cost is about $90k per year. that's a sub-4% cap rate for a non-income producing asset.
now my wife & i are both hyper-rational, economic creatures. we have dual MBA's. we think the total cost of ownership (property taxes, maintenance accrual, plus the cost of capital, minus the income tax shield) is around 9% per year.
given the spread between cap rates (3.5%) and our estimate of the total cost of ownership (9%) we figured that buying was at best a break even decision. at worst, it was/is a decision that could lose you a lot of money.
as an investor, my #1 rule is to try to avoid paying a high multiple for an asset at a cyclical peak (in earnings, relative value, etc). buying a house at a sub-4% cap rate at a generational peak in home prices - on any metric you want to use - didn't strike us as a good use of our capital.
when you combine that with the fact that there are so many great houses that one can rent in MB in the $7-10k range, to us it was a much more compelling to rent.
in the end, i figure we will have saved around $500-$1M over 5 years by renting instead of buying. that's not that much money over a longer time horizon. but at the time, it was enough to tip the scales in favor of renting in the near-term.
we're now in the market looking to buy, given all the turmoil and headlines. but i must say the MB market feels more unstable than it did 18 months ago. i certainly detect a lot more concern on the part of the professionals than i did last year at this time.
4:08 -- Case-Shiller adjusts for quality and for a number of other factors.
www2.standardandpoors.com/spf/pdf/index/SPCS_MetroArea_HomePrices_Methodology.pdf
4:08, there is no local Case-Schiller, just a regional one for LA (as well as other regions). Since this is a computer model that is used everywhere, CS can't know if an individual home has been improved. Instead, the computer makes assumptions using algorithms if a resale is too far 'outside the norm' and adjusts the price for the assumed improvements using a statistical model.
FYI - in the current environment, you have to put minimum 25% down to get a mortgage. I have seen a few posts recently on this blog assuming a 20% down payment. LA is considered a 'distressed area' and banks are requiring 25% down. Some are capping their loans regardless of what you put down (Chase caps at $1.1 million). There are certainly some exceptions allowing for 20% down but they are rare. I know this because we are currently applying for a mortgage, have good credit, high income, cash etc. All but one lender we have spoken to are no longer entertaining 20% down mortgages. Last year we were being approved for roughly twice what we can get today with the same credit and income profile we have now and $200K less cash in the bank.
Interesting thoughts, Huggy, I mean 2:46. You said, amongst other things - "Just what the doctor ordered, right bears? Well, don't get too cocky, there are now 7 (yes, seven) Tree section sales pending at or above $2.7 million set to close in the next 60-90 days."
One sign of a bear market, 60-90 day closes. What happened to the 30-45 day close? In a strong market would a seller EVER agree to a 90 day close? I think not. How many of the 7 are contingent? Also, we've seen plenty of homes recently fall out of escrow. You can proudly say there are seven 2.7mm+ homes that are in escrow, let us know when all of those 7 close. In addition to all this, how do we know that all 7 homes are selling at a profit? Perhaps the builder is in it to the tune of 3mm. Perhaps after a remodel an owner is selling below their cost. Once again, points out a flaw in logic that just bc expensive homes sell that it indicates a robust market. It simply means that expensive homes are selling and wealthy people are buying.
Stop with the median stats already. Believe me, when we start to see the median sales price number decline month after month, I'll point out to my fellow bears how flawed the stat is on the way down too.
9:46 said - "Mookie and Anon7 have engaged in the name calling as well."
I challenge you to find a post where I called somebody a loser. I called Susan M stupid once about 3 or 4 months ago and apologized on this site for resorting to the degree of Huggy. I've had issues with other"s opinions, but again, find a post of mine that called somebody specifically a loser, idiot, etc. If you do, I'll apologize again as I don't believe it adds much value to the discussion.
Once again, mookie, you jump to erroneous conclusions. The reason for the longer than average escrow period is that the majority of the homes are STILL UNDER CONSTRUCTION (I printed in all caps so it might sink in). And, by the way, since I am not privy to the details, a number of them may be slated to close sooner.
And what do you care if the builder makes a profit? The point was exactly the one you made - expensive homes are selling and wealthy people are buying. That may not necessarily be a bellwether for a strong market but it certainly does not prove that the market is weak.
And since you bring it up, you have yet to give a cogent argument as to why median price is flawed. Others have stated that it may be more of a lagging indicator than a leading indicator; that's fine but relying on a few anecdotal sales is NO evidence. Is this registering with you or have you now completely succumbed to the tender blandishments of the COTC.
11:19 - If you are a believer in the median stats theory that Huggy and others post, we are at the top of the market RIGHT NOW. Not in 06 or 07, but now. Today's median stats say that we are at $1.825, the highest ever in MB. That right there should tell us that median stats are flawed? Can the bulls look themselves in the mirror and really say that we are finally at the peak today? Don't think so.
Huggy said -
"And what do you care if the builder makes a profit? The point was exactly the one you made - expensive homes are selling and wealthy people are buying. That may not necessarily be a bellwether for a strong market but it certainly does not prove that the market is weak."
First of all, I could care less if the builder makes a profit. More power to them bc I'm a capitalist to the nth degree. My point however is that selling a house for $3mm doesn't mean the market is strong, or even holding up. I'm guessing, yes guessing, that at the peak of the MB RE frenzy, that if those homes were on the market at that time that they probably could have sold for 10-20% higher. Due to the weakness we are seeing, they now have to settle for less. Somebody earlier pointed out that if 1000 homes were each sold for $5mm each, that doesn't mean a market is strong. What if a year before they all could have been sold for $6mm. That would indicate that the market is soft and that is my current theory about MB.
By the way, why don't you share your knowledge of the off MLS sales above 2.7mm. I'm sure all of us would love to hear the specific addresses you're referring to.
Huggs, lets agree to disagree on this one as I'm sure the peanut gallery is tired of us going back and forth. Actually, they're probably only tired of me.
Mookie, please reread 2:46. I would have thought you'd be jumping up and down with joy at my revised median sale price figure. Of course, with a smaller number of transactions, that could easily jump back up in the near future.
Median sale price is not the only stat that one should look at; it's one of many factors to be used to determine a market's health. That includes inventory, which is higher than it's been since Fall, 2006 (somewhat bearish), number of months of inventory, which is slightly above 3 months worth (neutral to slightly bullish indicator), slower sales (bearish indicator).
Cherrypicking anecdotal sales or looking at price reductions off list prices tells you almost nothing about the overall health of the market.
Close to $2.7 mil or above include 644 33rd ($2,860,000) and 2705 Palm, both listed as contingent, 652 26th (pending, $2,7 mil), 1813 Pine (pending, $2,799,000), 605 15th (pending, $4.2 mil) and a few others to be named later.
a true MB snob
What? The "least desirable" homes I was referring to are in MB. In fact, one of the "less desirable" areas (to some people) is EMB, where I reside.
please share your happy pills
Un uh. Get your own!
Huggs, I'm a man of my word. I said before i believe median sales is a crock of crap, so when you post your 1.575, aside from the fact that it is for one day, even if it was for six months, I know it's flawed.
As for your sales, waiting to see if they actually close and for how much. Two are contingent. I admit, I'm no pro, but contingent offers being accepted is another sure sign of market weakness. Didn't realize the other two are top secret.
Mookie- You can't make a blanket statement that contingent offers is a sure sign of market weakness. Sure in the heydey from 2002-2006 there were none or maybe a few contingent offers, but there were plenty of contingent offers that were accepted from 97-2001. I wouldn't really call those years a weak market. You still haven't really offered any true insight into the market declining. But I guess your crystal ball is quite clear. Good for you that you didn't get suckered into paying $400k more last year.