Can a Flip Flop This Quickly?

Something strange is happening with 225 39th St., a recent El Porto remodel. (Click address for details.)

MBC reported in April that the home was in foreclosure:

Also coming up for auction May 4 – 225 39th St., just a door down from Highland Ave. in El Porto. No recent purchase here, but records indicate a $1.005m loan gone bad.

It seems rare that homes go to auction and go anywhere from there but back to the bank. Fast-forward a bit, though, and records show this home closed for $1.595m on June 14.

Seven weeks later, on Aug. 10, it was on the market, freshly remodeled (3br/3ba, 1600 sq. ft.), at $1.745m (+$150k).

No takers. It was re-listed to wipe out the start price, then it came down a bit, and this week, the list price came down to $1.629m. That's right, just $34k more than the June purchase price.

You'll give the buyer's agent $40k at that price, which makes the deal a loss, straight up.

The big questions are: When the remodeling was done, and by whom? That is, was the work done before or after the June sale, and by the June buyer or a previous owner? Obviously, if the current holder did the work, the losses are magnified.

The only thing that's clear is that this owner wants out. You do not often see a listing go from profit to loss like this in 60 days.

How Are Sellers with the 2-Year Itch Faring?

It was a long morning for MBC (the 10k) and a long day around the fair, but we do a have an update to offer you before the weekend's out.

Some time ago we ran a story about home sellers looking to cash out after just two years in their current residences ("Getting the Two-Year Itch"). We also ran this update a few weeks later.

As we noted in the first installment, one reason folks may be selling at the 2-year mark is to draw the maximum tax-free profit:

Thanks to our tax code, you can reap up to $500k in capital gains (for a couple) on a home sale tax-free. You just have to have made it your primary residence for 2 years.

To which we say, more power to you.

The real purpose of tracking like this is to watch for market price trends. This is roughly how the respected Case-Shiller index works – they track same-house sales over time in several markets and use those, rather than median price or PPSF, to gauge degrees of change.

In our case, we have a still-small sample, but the results are becoming intriguing. (Click the graphic to enlarge; if that isn't legible, click here for the 1-page PDF.)

We have 24 examples of two-year itchers, of which 11 remain active listings, 10 are pending or sold, and 3 dropped out.

Let's look first at the 10 solds, which might begin to tell us: How has the market changed in 2 years?

Of the 5 biggest gainers (16%-61%), 3 were major remodels. One more (132 18th, +25%) was in an outstanding location on one of the city's best streets. And one (2500 Pacific, +16%) was actually purchased in 2005 for well below its VRM asking price range. In 2005, you didn't see many cases of people paying 20% below asking. Of the 5 big-gainers, only 18th St. offers a reasonable answer as to general market trends – and even they took $245k off asking this year.

Four more sold homes, which remained much the same over 2 years, rose in value by 7%-16%. (One is pending.) With more data, the range of 7-16% would be a good answer to the question: "How much did homes increase in value over the last 2 years?" Right now the data are mainly suggestive.

The 11 active listings show us a group of sellers that largely began by seeking much more than 7-16%. (Note: We are showing the start prices only in the chart, to track how good or bad sellers' guesses were of their homes' increased value.)

The full range of price increases sought is 11%-79%, with the +79% house being a big remodel.

All of the actives have been on the market at least 90 days, some significantly longer. (For details please see the MB Market Update spreadsheets.)

The headline coming out of this group is large, nearly-new 3011 Elm (click for details), which is now listed for less than the 2005 purchase price. Elm (pictured) began May 2 at $3.095m (+$295k/+11%), but on Thursday it re-listed at $2.795m, $5k less than the July 2005 price. These folks apparently need to get out.

Similarly, 601 Larsson is now listed below the Sept. 2005 purchase price – by $151k. (That's no headline because MBC readers know too much about that house by now.)

Most of the rest of the actives now show reduced ambitions (price cuts), but there are obstinate ones:

• 505 3rd has never shifted price from $1.949m (+$349k/+22%)

• 1400 Elm is down only slightly at $2.295m (+$595k/+35%)

• 1313 Oak is down $100k, but still seeks $2.390m (+$865k/+57%)

We're going out on a limb here to say that 20% to 50% markups aren't going to draw a lot of interest in the market that's evolving now.

MBC notes the contrast between folks selling after 2 years – most will make money – and the examples we gave last week of sellers getting out after 1 year, most of whom will lose. Even with small samples, these contrasting stories may tell us that our local market's price peak was between 1 year and 2 years ago.

Sound the Trumpets: John is Sold

Here we go with another big-dollar sale in MB...

512 John is pending at last. Most recent list price: $3.99m.

The full saga as covered on MBC includes:

• A discussion of the home as a "masterpiece" and evaluation of the rental option ($20k/mo.).

• News about the $400,000 price increase mid-listing, featuring this quote:

Do the people who bought 512 John earlier this year really mean to sell it?

• Description of the $750,000 price cut which guaranteed the current owners a net loss.

• A story this week estimating those losses at $316,000 (with 6% cost of sale, which may or may not apply here).

Yesterday marked 205 true days on market for this home – more than the 152 DOM showing in the listing, but less than the 450 days showing in the "CDOM" field. (That's a head-scratcher, but we believe our source.)

So at this point the question is only how bad of a hit the sellers take.

What's interesting about this one is that the financial loss appears to reflect a builder's misperception (overestimation) of the market value of the home in the first days of 2007. The home was essentially taken in trade, we're told, no doubt at a price the new owner believed to be a below-market bargain at $4.075m. Seven months later, the market has proved that opinion wrong.

We expect hard-core market watchers to have a fine sense of prices, but anyone can make a mistake – especially this year.

John makes 5 escrows for September SFRs west of Sepulveda, and a new contingent sale was posted today, too – 505 3rd on the South End, listed at $1.949m and purchased in 2005 for $1.6m. So we're at 6 now for the month, all of them over $1.5m.

A Quick Catalogue of (Possible) Losers

This is a grim subject. But the fact is, people are losing money selling homes in Manhattan Beach, or, more precisely, are preparing themselves to do so. That's news because, well, it's new.

Consider some of the frequent travelers on MBC:

• 758 14th – paid $1.695m in July '06; listed now at $1.75m; loss with 6% cost of sale = $50k.

• 512 John – paid $4.075m in Feb. '07; listed now at $3.99m; loss with 6% cost of sale = $316k.

• 2812 Elm – paid $1.584m in June '05; listed now at $1.649m; loss with 6% cost of sale = $35k.

• 601 Larsson – paid $2.0m in Sept. '05; listed now at $1.999m; loss with 6% cost of sale = $121k (this is a short sale; the lender gets hit).
  

• 714 MBB – paid $1.355m in April '06; listed now at $1.199m; loss with 6% cost of sale = $228k.

On the bubble – here we mean homes that might well close for a loss, but we don't have enough info yet:

• 3009 Highland/"232 30th Pl." – paid $1.225m in July '05; listed at $1.329m; gain with 6% cost of sale = $24k; but isn't that "profit" at risk given long DOM?

• 3200 Elm could make the list; sellers paid right around $1.9m in March 2005; sought about the same at $1.949m this Summer and quickly went into escrow; will need the original purchase price to run the numbers when this escrow closes.
  

There are more, but you may see a pattern.

First, the purchases were (perhaps obviously) all quite recent, within 2 years. Maybe all that really tells us is that the crazy runup is over. (Not news.)

Second, none of these have sold yet. They could have further to drop.

Third, though we'll re-check this, we don't yet see a net-loss sale in MB west of Sepulveda in the Spring and Summer 0f 2007. Several sellers are angling to be the first, but we haven't seen a net-loss scenario play out yet.


UPDATE: Some math was fixed and one home added to the list since the original post.