Lines Cross in the Trees

In tracking SFR inventory west of Sepulveda this past year, MBC has broken up the Tree Section into two market segments. Homes offered for less than $2m made up one segment, and homes starting above $2m made up the other.

This dividing line roughly corresponded to resales and smaller homes, at the lower end, versus new and newer homes in the upper segment.

MBC also declared that the market above $2m was glutted, particularly with new construction, several months ago – before it was hip or obvious to say so.

For almost all of this time, the majority of Tree Section inventory was in the $2m+ segment. As this graph shows (click to enlarge), there were even times when 2/3rds of inventory was in the upper segment. Demand was fairly constant through the Spring and Summer of 2007 for homes priced below $2m.

But in 2008, that has changed. We now have slightly more homes on offer in the sub-$2m range (25 versus 24). As the graphic shows, the lines have crossed.

We saw 5 sales of homes priced under $2m in the first 6 weeks of 2008, but 2 of those were new construction on which the prices began over $2m and dropped below. Meanwhile, the inventory in this segment has more than doubled from 11 at year end.

Of the 25 actives on Feb. 15, 10 were priced below $1.3m, and 3 were actually below $1m. It's been a while since we saw so many offerings at those levels. Of course, as inventory grows, there should be more deals at the lower price points.

Two End the Suffering

True story: Your humble correspondent drove by the longtime listing at 232 30th Pl Friday morning, gave it a quick glance, and a little voice said, "It's time." As in – this one has suffered enough, it's time for a sale.

Imagine our surprise – well, maybe not surprise – to learn later in the day that 232 30th Pl is actually now in escrow, after almost 10 months on offer. Whoa.

Now, it's a contingent sale, so let's not jinx it, but it seems it might be time to say goodbye to another old friend.

MBC first featured the home in late April when it had a different address, 3009 Highland (see "Decelerating Returns.") We noted that the home had been sold frequently in the boom years, rising from $510k in 1999 to the $1.225m that the current owners paid in July 2005. When they listed for a modest markup at $1.369m, MBC viewed that as nearly flat pricing, and said:

"Here is a case of fairly realistic sellers. They don't expect a pot of gold for the trouble of living in the house for < 2 yrs. They're just ready to move on. They have room to offer price reductions without selling for less than they paid."

The sellers later changed the home's address, which confused us a bit (see "Changing Address Midstream.") They took modest cuts from time to time, and lingered at $1.289m for many months.

So let's do the math – if they pay out commissions at the near-bottom level of 4.5% in total at that price, they earn $5k. A sale price below $1.289m, or commissions above 4.5%, means a net loss. As charter members of the two-year-itchers club in 2007, the sellers here provide a warning – you may not get what you paid at the peak anymore.

At this point, regardless, the sellers have just got to be happy to be moving on.

On the same day, the longest-running listing west of Sepulveda also went into escrow.

Frankly, it ain't the same kind of story as 3009 Highland/232 30th Pl, but the new construction at 2709 Oak is in escrow now, last listed at $2.049m.

If anything, 2709 Oak was a warning flare showing that the Tree Section's $2m+ segment had stalled out, and that buyers would be insisting on quality and location henceforth. This newbie was first offered in August 2006, more than 520 days ago, at $2.395m, which must have seemed reasonable at the time, including a location discount.

MBC has mildly raved about this house before (5br/5ba, 3600 sq. ft.), and lots of readers have said here and privately that they liked the build, the brightness, the size, and, really, everything but the location and maybe the curb.

Not long ago the builder set an absolute minimum of $2.050m, perhaps reflecting a break-even price. Once list came down recently to that level, though, you had to figure it'd sell somewhat below. (The lot was purchased for $920k in April 2005.)

Botttom line: It's likely we've got another case of new construction selling for a loss in the Tree Section.

These two sales dredge up a thought about one more – the new home at 911 Duncan in the Hill Section was on the market more than 7 months when it went into escrow earlier this month, at a new list price down $470k from start.

Could it be that buyers here in January are bona fide bargain hunters?

A Builder's Take

You know things are getting strange in the local real estate market when a noted builder takes out a half-page ad (click to enlarge) not to market a home, but to persuade fence-sitting buyers that prices "will not and cannot come down another 10% this year."

We'll reproduce the text of the ad here and comment below:

The Crystal Ball Story

Advice for New Home Buyers

I've been in the real estate development and sales business in the South Bay for more than thirty years and you can rest assured that prices on new homes will not and can not come down another 10% this year. Here's why:

New homes currently on the multiple listings service that are between $2.1 million to $2.6 million were purchased as building sites in the ballpark of $1.3 million (cost to purchase an existing home as a construction site).

The development cost to build a 3,300 square foot home is around $1,000,000. This is higher than one would initially expect but breaking down the components of this high figure is telling. It includes building costs ($825,000 @ $250/ft.), interest ($100,000), sales commissions ($125,000), permits, liability insurance, workman's compensation insurance, etc.

Using these approximations, since sites and plans vary, one can see the break even point for the builder is $2.3m. In order to sell new homes under $2 million, the price of building sites needs to drop 40%, down to $700,000-$800,000. This will not happen in Manhattan Beach because there are too many investors and home buyers willing to pay much closer to $1 million for a site to build their dream house and still manage to accumulate equity. There are currently no homes in Manhattan Beach for sale under $900,000. So, my advice to you is to make the best deal you can on existing inventory now and enjoy your new home. Watch the value of your home rise in value by 20% over the next 5 years.

This is a fascinating window into a builder's perspective on the slowing market – particularly the glutted Tree Section new-construction segment. We'll break this all down in a minute, but let's try to translate the overall message:

Listen, you muddle-headed market-timers, the best you're ever going to do is to make a good deal on the stuff that's on the market now. Don't worry, even if you lose some paper equity, it'll all come back in spades. By the way, I'm selling some of that lingering inventory and would appreciate it if you all got your heads on straight and started buying.

Fair?

The argument is pretty simple:

1. On most current inventory, high lot acquisition prices ($1.3m on average) are going to preclude builders offering deals. They've got "break even points" to worry about. So prices are stuck where they are, sorry.
2. Lot prices will have to drop 40%, as low as $700k – doesn't that sound absurd! – for new homes to sell for less than $2m. (And only $1.9m, at that.)
3. Therefore, you can't get a big bargain now and you won't get one later. So buy now.
   

Surely you noticed the first flaw in the argument: Builders can lose money instead of breaking even. Let's consider 3 recent sales of new construction on which we're reasonably certain the builders lost money:

• 648 35th (5br/5ba, 3600 sq. ft.) – lot price: $1.33m; sold price: $2.075m – difference: $745k

• 2807 Elm (5br/5ba, 3550 sq. ft.) – lot price: $1.475m; sold price: $2.1m – difference: $625k

• 2310 Palm (5br/3ba, 3150 sq. ft.) – lot price: $1.45m; sold price: $2.2m – difference: $725k

For illustration's sake, if we just assume this builder's $1m flat estimate of building costs across the board, then on these 3 sales, builders lost $255k, $375k and $275k. So much for the break-even points.

Could lot values drop? By 40%? We're seeing modest deterioration already, if the start point is $1.3m in the Trees. (The lots referenced above were higher in '05 and '06.) Some sales of likely or certain teardowns in 2007:

• 3521 Elm: $1.150m
• 2103 Elm: $1.1m
• 3404 Pine: $1.2m
• 2503 Valley: $1.03m
• 1713 Oak: $1.08m
• 848 14th: $1.35m (a counterexample)

Now, few of these are good examples – several so-so locations, and all but 3404 Pine slipped to the MLS instead of being snapped up first by builders. That would generally mean that you should expect lower prices.

Still, we know builders aren't paying as much for lots anymore, pinching the market that this ad suggests is full of demand. As losses mount, banks grow skeptical and investors take a hiatus from new-home developers, of course demand can shrink further and lot prices can take a further dip. Is it 40%, or an average lot price near $700k-$800k? A bellwether to watch for now is 3009 Poinsettia, a lot in a great location that's had no takers at $1.4m.

Are you really better off buying now, rather than waiting for some future new home to come on the market at a better price? You almost certainly are better off buying now if this builder's numbers turn out to be right. His market projections are specific, and worth tracking: new homes "will not and cannot" go down 10% this year, and, if you buy now, your home will be worth 20% more in 5 years.

Yet the ad's author has surely seen down markets surprise builders, banks and buyers before. Has he never witnessed a 10% drop year-over-year in new-construction prices? Fat chance.

So why can't it happen now, again? Because builders have to break even?

Winner of the Race to $2.1m

If you've got to sell, one theory is that you've got to move the price enough to convince buyers you're flexible. Certainly, 2807 Elm did that.

The movement on Elm, a new home that only entered our glutted $2m+ segment in the Tree Section in late June, was stunning. It went from dramatically overpriced at $2.899m, down, down, down in $100k chunks, to $2.299m.

Now it has closed escrow at $2,100,000, fully $799k down (-28%) from start, an extra $199k off the last (reduced) list price.

This officialy makes 2807 Elm a winner of the "race" toward prices around $2.1m we saw developing in October (see "The Race to $2.1m, and Then...") – noteworthy at the time because previous clustering of comparable listings had been around $2.3m instead.

Man, did they unload this puppy. Though it wasn't super-quick (139 DOM), by comparison with other new construction, this sale happened in a flash.

2807 Elm boasts 5br/5ba, 3550 sq. ft., on a larger-than-normal 5600 sq. ft. lot that afforded a quite decent back yard. In our tour, MBC found the home charming and a bit unique. We must concede that we've received some private feedback that wasn't so positive, but we loved it and we've said so.

Now look at something else: 2807 Elm's price per square foot was $592. We haven't recorded a PPSF less than $650 since June in this segment, and mostly you see $730+.

No question, this sale has ramifications. We'll return to this with more analysis later in the week.

Discounts in the Teens

We had two sales close in the last few days in the glutted Tree Section $2m+ segment. Buyers got 14% discounts off the original list prices of both homes.

• 2310 Palm (5br/3ba, 3150 sq.ft., new) went into escrow shortly after being featured by MBC (see: "The 1-Year Club in the Trees") in late October. But it's not like the home hadn't had exposure before – it was on public offer for 438 days, starting at $2.699m, closing at $2.325m (-$374k/-14%). Last list was $2.399m.

• 3011 Elm (5br/5ba, 3600 sq. ft., newer) got $2.65m, which is plenty, but here's the thing. It was purchased 2 1/2 years ago – by a pro athlete who has now moved within the Tree Section – for $2.8m. On the face here, the home declined in value by 5% over 30 months. It also dropped 14% (-$445k) from the hopeful price of $3.095m slapped on the listing in early May of this year.

Percentagewise, those sale prices were the second- and third-greatest reductions recorded by MBC in 2007 among Tree Section sales above $2m. The biggest cut was 18% at 2104 Palm, which shot for $3.675m in January and got $3.025m in September.

As to 3011 Elm (pictured), an interesting question arose in comments here at MBC. When it was first sold in July '05 for $2.8m, the home was actually listed for $2.595m. There was a bidding war that resulted in the $2.8m price. So, if it has now re-sold for slightly more, at $2.650m, did it really decline in value over these 2+ years?

Obviously the value of 3011 Elm to a willing buyer did change by 5%. Also, time on market stretched out a bit here – almost 200 DOM this round for the same house that had a war last time.

What's most fascinating is that in the Summer of '05, the list price suggested that the market value was under-estimated by 7%, while in the Spring of '07, the value was over-estimated by 14%.

First Newbie Under $2m

We know the situation is tough for new construction in the Tree Section.

Until recently, however, new stuff in the Trees always started over $2m. Certainly, since Spring this year, that's been the case. No new home has been priced at, or sold for, less than $2m.

Breaking the pricing mold: 1144 Elm, a 2-week-old listing that otherwise fits the basic profile – 5br/5ba, 3300 sq. ft., and a standard 4480 sq. ft. lot. It started $5k below $2m, at $1.995m.

The home has character inside, with good living spaces downstairs, nice detail work in the kitchen and baths, even kids' bedrooms that don't seem too scrunched. It's bright, too, despite a northern orientation – apparently a good use of skylights.

So why is a very decent new build priced, achem, low?

Consult your book on Cardinal Rules of Real Estate: Location, location...

1144 Elm is one door in from MBB, buffered from that busy street by commercial buildings. You really don't want to see your neighbors to the south. And being pinned in by MBB makes you realize you're not really close to anything except the Arco station. Do you really want to drive everywhere?

Demerits, also, for the tiny back yard (par for the course) and for the façade, which is confused and generally a turnoff for this viewer. The stapled-on stone is pretty awful – in fact, MBC has previously called out this dreadful garage arch. We don't think the whole look comes together.

The builders grabbed this lot for $925k in June '06, which suggests both that they got a good deal and that they threw this house up fairly quickly. Though the construction does not suggest a rush job, the pricing is the most aggressive we've seen so far in the Trees. Will that get them to a sale more quickly?

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.

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?

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.

Measuring Activity in the Trees at $2m+

There's now one MLS-listed property pending in the Tree Section in the $2m+ range, a difference of one from MBC's story yesterday, when we noted that there were zero.

The lucky one is none other than 1718 Pacific, which, at $4.299m, we thought might be overpriced. Whose opinion matters most? The buyers'.

Pacific now becomes part of the 38% of all listings in this market segment to sell since April.

Using the MBC wayback machine (ok, spreadsheets), we compiled this chart. (Click to enlarge.)

We started with all the homes active on or about April 1, 2007, and tracked what happened to them through Oct. 10. Our sample size is 61, of which a bit more than half (32) are currently active listings, 23 were pending or sold, and 6 canceled. Nerdy note: We count as "active" $2m+ listings two homes that began above $2m, but are now listed below $2m.

So how does this mix compare?

In the other Tree Section market segment (<$2m), the ratios are nearly reversed: 56% of listings are pending or sold, while just 33% remain active. (11% canceled.)

In the hot-hot-hot Sand Section, 63% of SFR listings have sold since April, while just 27% linger.

So in each case, the high-end Tree Section market compares unfavorably.

We don't know what's "normal" for any of these market segments. (We also invite feedback on this measure – do you find it useful?) We know that inventory was about 1/3 higher at this time last year (see "Inventory, Absorption & Balance"), while data suggest sales happened at a rate just a bit higher in 2006 than they're going this year (YTD), so it's possible these ratios held about the same across MB.

On the positive side, seeing that about 40% of listings in the $2m+ segment have sold is better news than expected. Demand is definitely pacing behind supply, but homes are selling, too.

There are several other factors to look at here, including DOM for these listings and the slowdown in sales since July. All for another day.

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.

You Wish These Photos Would Say Less

A surprise entry into the glutted Tree Section $2m+ segment is a lot sale at 616 19th.

For this 5,200 sq. ft. lot, just up 19th off Ardmore at the bend across from Live Oak, the sellers would like $2.1m.

A few free yuks today from a few dreadful photos. MBC's favorite is featured to the right, but the whole set (of 4) can be seen by clicking here. And if you like virtual tours, you'll find the darling music on this one quite a contrast to the visuals.

Now, we know this one is not being pitched as a beauty – but still, pics highlighting the nearby intersection seem foolhardy. (Or are they honest, and therefore deserving of praise? Hmmm.) MBC is pretty sure this is the first virtual tour ever to hone in on a stop sign.

These pics are bad, but in a different way than the set for expensive new construction at 570 27th, mentioned in this story last week. In that case, the pics were supposed to help sell the glamorous new house.

On the details for 19th, it seems the only way that $2.1m pencils out as a good lot price is if you can later sell new construction at $4m+.

Both prices seem steep, since, location-wise, this is no 524 15th – a comparable recent sale where builders were bidding (though a remodeling-minded buyer took it). For now, this is the only teardown in the Trees over $2m.

A 41-Day Wait; A Big Score

At last, there has been a sale in the Trees at $2m+. And this was a big one: Over $3m.

The last reported new escrow in the Trees (from MLS-listed homes) came on July 31 – 2104 Palm, as noted in "A Trickle."

Fully 41 days later, we get the report that new construction on highly desirable 31st St. is in a contingent escrow (717 31st, that is).

Start price on this one was $3.449m on April 19. Three months later, the slate was wiped clean with a re-list and a modest price drop to $3.379m.

(An aside: You think the "CDOM" field ["combined days on market"] seen by realtors is the honest fallback number everyone can trust? Don't believe it – today, we're informed that the CDOM on this home shows 66 days, not the truthful 144 days.)

So, two months after re-listing, and having witnessed the near-stoppage in the market since early August, did the builder offer a significant discount? It would seem willing, qualified buyers in today's market can name their prices. We shall see.

This new escrow raised another important question – what else, from the MLS, has gone into escrow since Sept. 1? Our records say:

• Hill: zero

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

• Trees: 717 31st ($3.379m)

Also, 217 9th St., new construction near downtown, went from sold with a final reported price and closing date, back to pending. We're sort of tiring of this back-and-forth.

So, we count 4 new escrows in our subject market segments (west of Sepulveda, SFRs only). We have a new record for a Tree Section drought – 41 days eclipses 25 days without a sale in the $2m+ segment.

But some folks are happy. And just imagine how those sales will skew the monthly median price when they close. Isn't it a sign of a healthy market when the median price keeps shooting skyward?

Drought Ends, Glut Continues

A sales drought in the Tree Section $2m+ segment has now ended after 25 days.

MBC's records show that the last sale was 3005 Poinsettia, posted on June 29 and discussed here.

Today comes the news that the new construction at 3113 Valley is pending.

This home is 5br/4ba, 3400 sq. ft., on a slightly larger-than-usual lot (5000 sq. ft.). Last price was $2.299m – or $674/sq. ft., the lowest among Tree Section new construction.

Bonus feature: Solar electric generating system pre-installed. Nice.


But 3113 Valley has been immediately replaced by a new home at 3104 Pacific (pictured), which begins at $2.149m, $150k below the other new construction in the Trees.

That probably seems like aggressive pricing for a newbie that, by profile, is a lot like the others that are close in price (5br/4ba, 3200 sq. ft.).

But 3104 Pacific also must consider two new homes on Pacific sold within the last year that sat around awhile and took real reductions.

• 2512 Pacific (5br/4ba, 3600 sq. ft.) began in March 2006 at $2.350m. It stuck around and the listing language got more pleading – "Waiting For The Bubble? Seller Will Negotiate Now!!!" County records show it sold for $2m (plus $4k) in Nov. '06, down $345k (-15%).

• 3405 Pacific (4br/4ba, 3200 sq.ft.) also began in March 2006, at $2.149m. It sold one year later for $1.775m, down $375k (-17%).

With neighboring new construction selling for $1.775m and $2.0m, all of a sudden, the price on 3104 Pacific looks quite high.

The home at 2512 was bigger, but went for $150k less than the start price here. All things being equal, at the same square footage price ($556), 3104 should sell for $1.780m – about the same as 3405 Pacific.

Of course, those sales closed long ago. We need not consider them now. It's a different market already.

Take the House, Take the Car

One of these days, the folks selling 1313 Oak will find a buyer.

They did not last year, when they started at $2.8m in April 2006.

They have not so far in 2007, despite a $300k price drop when they began anew in late May this year.

Offering up $300k worth of custom furnishings as part of the deal didn't work. The "Queer Eye for the Straight Guy" connection didn't move the house.

So now, you get a free car. If only you'll pay full price. (Pic above from Beach Reporter ad.)

The Mercedes S550 is valued at nearly $90k new. (Is this one new?)

The listing no longer mentions the $300k worth of free furniture – is it still a silent part of the deal? Or do we get the car, but no "Queer Eye" lifestyle?

We may chuckle at the tactics, but we can't ignore something real: So far in July 2007, 1313 Oak was alone among all Tree Section listings over $2m to actually accept an offer. (There were 32 active listings as of July 15.) But escrow failed. That the deal didn't work out could be anyone's fault.

Maybe the gas tank wasn't full.

Trees: Two Near $2m May Be Sold

There is a little movement amid the otherwise complete stagnation of the Tree Section market above $2m.

The "cheapest" home over $2m, and another priced just under $2m, are now apparently near deals:

• 2909 Elm (5/4, 3450 sq ft) was featured by MBC after the price moved from $2.8m to $2.025m; [please see update at end]
  

• 746 36th (4/4, 3000 sq ft) is a newer listing that began at $1.985m, perhaps endeavoring to avoid the curse of the $2m+ segment.

Both of these homes were completed by the early 1990s, so this hardly relieves the new-construction glut. But at least it's action. (They're both on "hold" status, a step short of pending.)

MBC doesn't record the exact dates that homes go into escrow. But we can estimate pretty reliably that the last one to go in the Trees at $2m+ was 3005 Poinsettia ($2.525m) on or about June 29.

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