90405 - Negative Cash Flow

Address: 2432 21st - 90405

Details: 3 bed/2 bath - 1,200 sq ft house (furnished)

Description: This is a beautiful 3BD 2 BA home in the hearth of Sunset Park in Santa Monica. Completely furnished with a huge 60" Screen DLP TV.Close to Clover Park, Shopping and Restaurants. Hurry this one will go fast. Pet friendly with additional deposit, also available unfurnished.

Rental Asking Price: $4,500/month

Purchase Date: 4/4/07
Purchase Price: $1,100,000

Basic Carrying Costs (Mortgage + Taxes):
6.5% x $1.1 million = $6,000/month
1.1% x $1.1 million = $1,000/month

$4,500 - $7,000 = -$2,500/month

So since Cramer told us not to buy a house, we have got to look at some rentals. Here we have a single family home in Sunset Park which was recently purchased. The owner is asking $4,500/month on the MLS. When we look at basic carrying costs, we see that this owner will have negative cash flow of $2,500 per month.

Since this owner is nice enough to subsidize your housing costs by $2,500/month, they are also nice enough to completely furnish the place for you and even throw in a 60" flat screen!! Hooray!

Of course, this negative cash flow is likely much worse once we incorporate the following: vacancy, earthquake/fire insurance, gardeners, repairs, 60" flat screen and furniture (fixed costs), any upgrades done since purchase, PMI on the loan, closing costs on initial purchase, and management fees.

Just as we have found out that owning a house costs more than just the monthly nut, owning a rental property can also have many extra costs (tangible and intangible). Over the next week we will highlight rental properties in Santa Monica and we will be exploring the idea that many flippers/speculators/investors are trying to rent out units which they can't sell or are not ready to take losses on. Negative cash flow is a temporary solution for deep pocketed individuals if the market picks up in a year or maybe two, but it is not something that works too well if we have a long, protracted downturn.

Our thesis is that real estate cycles take a long time to occur and that very few will be willing and/or able to hold negative cash flow properties through an entire cycle. This should put more pressure on pricing as there is a relatively large amount of "phantom inventory" that will get flushed out and onto the open market if the market continues to deteriorate.

"Don't You DARE Buy a Home Right Now"

Cramer vs. NAR Video

Today Show (Friday, Sep 28). Watch Cramer shake his head at the NAR guy as he speaks.

Matt: "Jim, you're glib"

Jim Cramer: "Yea, and accurate"

......

Jim Cramer: "These guys have been consistently positive in the worst market I've seen..."

NAR Head: "But homes are not stocks."

$1 Million = 2 bedrooms in a 1964 building??

Address: 852 21st Street #D - 90403

Details: 2 bed/ 1.75 bath Condo - 1,135 sq ft (+ outdoor patio)

Description: 2 bed + 1.75 updated condo. Extraordinary 400 sq ft private patio w/ no common walls! Very private; open,airy,front facing unit. Only 1 partial common wall. 2-car private garage w/ add'l 2 legal parking in front of garage. Crown molding, wood floors & recessed lighting. Washer/dryer in unit. Woodburning fireplace in living room. 3 closets in master. Building has eq insurance. Good reserves. Franklin school. Just ¿ block to montana avenue!

Purchase Date: 3/30/06
Purchase Price: $940,000

Listing Date: 7/12/07 (76 DOM)
Listing Price: $1,059,000

As seen in the last few posts, low end condos in marginal locations are showing the most distress right now. So we will try to focus on some of the higher end condos and then some townhouses... for you real snobs out there.

Here we have a unit listed at $933/sq ft which was purchased in the spring of last year. The interior has been spruced up a bit and it is unknown whether this seller was the one to "upgrade" or if it was the previous owner. Either way, this doesn't really look like a flip because it doesn't take 15 months to do minor upgrades to condos. Also, notice that this person isn't trying to wait the full 2 years needed to get that wonderful tax free gain. I would guess that this is one of the many "lets just try to break even" listings currently on market.

At $225/month for home owners fees, 1.1% property taxes, and a 5% realtor fee to sell, we are looking at about $75K in costs right off the bat. That leaves about $45K before this is a loss...but closing costs on loans and the "upgrades" would likely wipe this amount out. Lets call it a wash...assuming they get their price.

At 6.5% interest (and assuming 100% financing to account for opp cost on any down payment), we can look at this as the seller having rented this from the bank for about $5,100/month.

Now, how many of those ultra wealthy folks out there are going to want to shell out over $1 million for a glorified 2 bedroom apartment when you could rent a comparable unit for about 50% less...

How many people have $200K to put down in addition to an income of $200K in order to have the privilege of owning this unit? The numbers don't add up when you stop assuming appreciation of 20%+ every year. Wake up sellers, this is not 2004 anymore and prices will likely decline for years to come.

Foreclosure Battle...IN THE SAME BUILDING!

Address: 1824 20th #E - 90404

Details: 2 bed/1 bath - 894 sq ft condo

Description: Great bank owned property sold as-is. Close to freeway and local shopping. Please submit pre-approval letter, proof of funds and fico score with all offers. This unit is tenant occupied and cannot be relocated per santa monica rent control and torca.

Purchase Date: 4/28/06
Purchase Price: $512,300 (estimated using property tax records)

Trustee's Sale: 2/15/07 - Unit purchased for $1,000 (don't know why so low)

Listing Date: 5/11/07 (136 DOM)
Asking Price: $399,900
Price Reduced: 06/21/07 -- $399,900 to $385,900

When I did the post on Unit #G this afternoon, I didn't realize there were 2 units in the building which are both bank owned. This unit is currently listed as being owned by "Mtglq Investors" and Unit #G was "Homecomings Financial".

The "unpaid debt including costs" listed on the Trustee's Sale docs was listed at $492,944. So again, I believe this is a $0 down situation. The owner of this unit was also the owner of the other unit. So both $0 down and both get foreclosed on after less than a year. Do you smell something fishy or is that just me?

Now normally I would look at this and calculate the loss...but something isn't right here. And unit #G just undercut this nearly identical unit by $100,000. Ouch! And I wonder how much rent is being thrown off by this rent controlled tenant...

The worst part of all this is that these suspect sales of these two units were likely used as comps for other units selling in the area a year or two ago. This is part of the reason why some folks are so convinced prices are coming down hard. Inflated values based on loose financing is one thing...it is another thing altogether when you introduce the idea of fraud/cash back/other shady practices.

Yes folks, we are learning more and more everyday that Santa Monica, while lovely, really ISN'T much different.

90404 Foreclosure, Re-listing at 45% loss

Address: 1824 20th #G - 90404

Details: 2 bed/1 bath - 927 sq ft condo

Description: Bank owned foreclosure. Property sold as is. 2bed + 1bath condo. Unit is occupied, please do not disturb tenant. Buyer is to inherit tenant with all tenant rights, governed under santa monica rent control. Price reflects rent control disclosures. Information herein is not verified by agent. Buyer to verify all information and rely on their findings. All offers must be submitted on car form with pre-qualification and copy of earnest money check + proof of funds.

Sale History:
3/24/06 - $520,000 (Original buyer)
3/26/07 - $423,000 (Lender buys back at trustee sale)

Asking Price: $299,900

Unfortunately, I did not take note of the previous listing length and price cuts, but this property was on the market for a long time (since April 2007?) with at least one major price cut. It has now been re-listed and is showing a DOM of 5 days (per Zip Realty). If anyone has the listing history, please provide so we can complete the picture here (westside bubble?).

Anyways, this is one of the clearest indicators we have had of the Santa Monica housing bubble's deflation. The current owner is listed as "Homecomings Financial" per Property Shark. It looks like this lender (or servicer/affiliate) is going to take a loss of more than $125K after buying this thing back at auction. From the peak purchase in 2006 and assuming a 6% sales commission, we are currently looking at a loss of $235,000 or 45% altogether.

Property Shark shows the trustee's deed upon sale and it says the "unpaid debt together with costs" was $445,540. Homecomings bought it for $423,000. I will speculate that this is a situation where $0 down financing was used and the second lien holder recovered nothing. Any wonder why there have been "credit problems" lately?

Oh, and have fun inheriting a rent controlled tenant...I would be very curious to know what this rents for. Given rent control, one would think that this should sell close to its true "rental value". Bond floor anyone?

90405 - Townhouse Rollbacks

Address: 2615 6th #L

Details: 2bed/1.5bath - 934 sq ft townhouse

Description: This stylishly designed, recently updated Ocean Park townhouse with loft will delight your fussiest buyers. Quality kitchen features Downsview Cherry cabinets with built in Sub Zero fridge, Bosch convection range with 5 burner cooktop, Gaggenau hood and granite counter with mosaic glass splash. Master bath has 32" spa tub and molded glass sink and counter. Red Oak floors throughout. Private garage with direct entrance and lots of room for storage. Close to beach and Main St.


Previous Sale Date: 6/2/05
Previous Sale Price: $791,000


Listing Date: 8/22/07 (30 DOM)
Listing Price: $799,000 (likely reduced from $859K)
Zillow Listing Price: $859,000 (Looks like they forgot to show the reduction)

By popular demand, we are featuring 2 townhouses close to the beach in 90405 today.

This comes out to $855/sq ft and it has HOA dues of $300/month. I don't know if "recently updated" means that they did any of the upgrades or if they had purchased it with the upgrades already completed. The loss gets much bigger if they threw any money into this place. As has been shown on many other units, condos and townhouses are basically back to mid/late 2005 pricing. If someone wants to actually sell, they need to have a very desirable unit and/or price even a bit lower. I think it won't be too long until we start seeing late 2004 rollbacks.


Address: 607 Ocean Park

Details: 3bath/2.5bath - 1,495 sq ft townhouse

Description: Stunning Architectural Townhouse within 6 blocks of the Beach. Panoramic Ocean views from Malibu to the South Bay. Natural light abounds in this beautifully remodeled 3 Bedroom + Loft with 2.5 Baths. Recessed and Museum lighting throughout. Large kitchen and dining area. Oak Hardwood floors. Wood burning fireplace. Large Balcony, Terrace, and amazing Roof-top Deck. Beautifully manicured courtyard. 2 Car Private Garage with direct access. Walking distance to Main Street and all that SM.

Previous Sale Date: 1/6/05
Previous Sale Price: $1,000,000

Listing Date: 6/22/07 (90 DOM)
Listing Price: $1,099,000 (Redfin price...MLS shows a small cut)
MLS Listing Price: $1,080,000 (Price cut not yet shown on Redfin?)

Here we are looking at about $722/sq ft. This person bought almost half a year earlier than the 1st unit we featured, so even after commission, they can still be above break even (ignoring other holding costs). It says that it is "remodeled" though, so again, I don't know if they put money in or not. The pictures appear to show that it is empty.

If either of these two units put in money to "remodel", then we are really looking at at least 2004 rollbacks and big losses since without the upgrades these would have to be asking much less. I also find it odd that zip realty, redfin, zillow and the MLS have been showing discrepancies in pricing. Is it too much to ask for these services and the realtor to all be in sync with each other on the current asking price?

Have a nice weekend.

Sunset Park - Another Airport Flip...Even CLOSER To The Jets

Address: 2224 Navy St. - 90405

Details: 2bed/1bath 970 sq ft single family home on 8,600 sq ft

Description: Beautifully landscape santa monica home in the sunset park area. Close to the golf course, the beach and shopping area. This 2bedroom, 1bath, with an extra bathroom in the garage sits on a 8614sqft lot with palm trees and manicured gardens. Totally redone with hardwood flooring throughout the house, new kitchen with granite counter top, viking appliances, recessed lighting, new bathroom, paint and a fireplace on the patio this house is an entertainers delight.

Previous Sale Date: 7/31/06
Previous Sale Price: $700,000

Listing Date: 6/5/07 (106 DOM)
Listing Price: 1,250,000
Price Reduced: 07/31/07 -- $1,250,000 to $1,150,000

I suck at all things tech so rather than make a nice image showing where this house is located, I advise that you take a look on zillow or any other map. The house is DIRECTLY under the runway of the airport. If a plane were to fail in its take off, this house could easily be hit. It also is located on 23rd...this street gets VERY busy in rush hour and makes it so I have to wait a long time to get to Pen Mar to play some golf. Ugh, I hate that.

This is a direct competitor of the last house we featured. I would argue this location is even worse (although the lot is bigger). Notice how both homes started their asking prices at $1.25 million? Which flipper is going to blink first? And better yet, who is going to be the knife catcher paying more than $1 million to live on top of or underneath the airport?

Tick, tock goes the clock.

And I almost forgot. Look at the 970 sq ft. That means this house is asking $1,186/sq ft...This almost makes north of Montana mansions look cheap...

Sunset Park - The Airport Flip

Address: 2314 Pier Ave - 90405

Details: 2bed/2bath 1,400 sq ft single family home on 7,000 sq ft

Description: Exceptional view home in best Santa Monica neighborhood. Construction just completed!! Totally and professionally redesigned using best materials and professional craftsmanship. Beautiful new kitchen and baths, shimmering hardwood floors, gorgeous master suite with large bath and walk-in closet. Newly landscaped private gardens. Large 7000 sq ft lot. Impressive view. Submit.

Previous Sale Date: 3/23/07
Previous Sale Price: $920,000

Listing Date: 7/9/07 (71 DOM)
Listing Price: 1,250,000
Price Reduced: 08/17/07 -- $1,250,000 to $1,195,000

Notice that this photo is of the backyard...also notice that the house is literally on top of the end of the airport landing strip, so what you are seeing here is the airport. The listing description says "exceptional view" and later says "impressive view" and ends with "submit". Huh?

For $1.2 million, I would not live on top of an airport...I don't care how special SM is. There may still be room for a small profit for these quick flippers if they get their asking price soon. Sadly, there are numerous other flips to choose from and time is ticking away...

Sunday open house notes #2

While north of Montana, I heard/observed:

-Talking about how there is such a great breeze in the area (14th and Georgina) and that it was always "literally 10 degrees hotter" when they were in Brentwood.

-Nobody will take small, $150K remodel/rehab jobs in Santa Monica. So if you just want new windows, doors, landscaping, and other minimal upgrades it is tough to find a person to do it. The contractors have to get one of their subordinates to do it.

-An agent literally arguing with a potential buyer and demanding to know what they didn't like about the place...The potential buyer says something to the effect of "the kitchen needs at least $100K and this wall needs to be moved".

-An open house where the front gate was closed and you had to ring the bell to get in...maybe normal for a condo situation but this was on a house with steady traffic coming in and out. The first thing the agent says to me is "we have a huge price reduction".

-Signs on corners advertising an open house had capital red letters saying "REDUCED REDUCED!!!".

-Agent says "This house is VERY well priced if you ask me". It was a $2.2 million livable tear down.

Losses Rising From The South

Address: 333 4th - Venice, 90291

Details: 3bed/1.75bath - Zoning for multiple units?

Description: Very special original Venice Victorian priced under market! This location cannot be beat. .. close to Rose Ave. coffee houses, Main St. restaurants & shops, Abbot Kinney galleries and the beach! New roof & paint, bright & airy living room with high ceilings, private grassy backyard. Zoned for multiple units, this property has endless possibilities for restoration or development. Sold As-Is with Architect's plans included.

Purchase Date: 12/6/05
Purchase Price: $950,000

Listing Date: 9/13/07
Listing Price: $899,000

Due to the zoning as well as the fact that it is being sold with architect plans, I am thinking that this is another case of someone backing out after seeing the market weaken. Strange thing is that they fixed it up a bit with a new roof and paint job...This seems to be halfway between an aborted tear down and a minimal upgraded flip. Assuming a 6% commission and that they get their price, they stand to lose $105,000 or 11% after less than 2 years. Of course when you include architect fees, holding costs, taxes, upgrades, etc the loss gets much bigger. Now lets see another one.

Address: 846 Commonwealth - Venice, 90291

Details: 2bed/2bath SFR

Description: Enjoy beach living behind the gate of this designer chic Venice compound lushly landscaped & private. Spacious open floor plan w/ artistic details. Hardwood flrs, high ceilings w/ beam accents throughout. Large bedrm w/ wall to wall closets & his/hers master bath. Entertain guests while cooking in this open kitchen w/ all new appliances including a Wolf range or outside on the Satillo tile deck. Additional detached room perfect for office/studio. Just blocks from Abbot Kinney & Main st.

Purchase Date: 5/4/06
Purchase Price: $969,000

Listing Date: almost 5 months ago (140 DOM)
Listing Price: $945,000

**Note that I don't have the pricing history on this but given the DOM, I have to imagine several price cuts have been made to get to the current listing price**

I can't tell if this property was improved before the purchase date or not. It definitely looks like they spent some money fixing up things and putting in new appliances, etc. I really wonder what the original price was...it must have been much much higher. Assuming a 6% commission, if they get their current asking price they are looking at a loss of $81,000 or 8.4% after less than a year and a half...and of course, this does not include any upgrades (some were likely made here), holding costs, taxes, insurance, etc.

Bottom Line: I found these properties by chance while I was looking at properties located near the southern border of Santa Monica. Examples like these support the theory that weakness is spreading into SM from the south (and of course, the east as well). Venice/Mar Vista have lots of flipper inventory and losses are starting to take place on single family homes.

This next week we will look at 90405 single family homes. The game of "buy for less than $1 million, fix it up and list for near $1.5 million" seems to have worked well for the past few years in 90405 as well as areas like Venice and Mar Vista. Now, these examples above show what starts to happen as the market turns. 90405 is trying hard to hold out and the flippers stuck with properties are praying for a sale. Will they find knife catchers in time or will they be stuck with losses? Real estate right now is a game of time and guess who's side it is on?

Franklin Street Update #2

The drama on the 1300 block of Franklin Street was one of the many factors that gave birth to this blog. Events were taking place that just HAD to be chronicled. We saw a foreclosure, a dreaming flipper, and a motivated seller. Lets see where we stand today:

1315 #C - 2bed/1bath - 851 sq ft
Asking $520,000 or $611/sq ft (no reduction after 31 DOM)
Remember that this is a foreclosure with no kitchen.

1315 #B - 2bed/1bath - 854 sq ft
Asking $669,000 or $783/sq ft (no reduction after 57 DOM)
Purchased 4 months ago for $630,000

1328 #3 - 2bed/2bath - 1,152 sq ft
After 66 DOM, we have now seen 2 price cuts
Price Reduced: 08/08/07 -- $575,000 to $555,000
Price Reduced: 09/12/07 -- $555,000 to $525,000

This comes to a current $456/sq ft asking price for this last unit. It also just so happens that this last unit was purchased in 1997...within the period of the prior cycle's bottom.

This last unit is way bigger and has an extra bathroom. The owner has built up lots of equity since buying at the last market bottom. They clearly understand how cycles work and have a lot of room to cut price and still make a huge gain.

When this unit sells before the other two, it will set a direct comp and force the others down. Flippers and banks can be in denial and try to hold prices high, but when a superior unit on the same block sells for 25-42% less per square foot than your asking price, we may finally see these other sellers accept reality.

What Do You Want?

I think things have gone well so far and we have touched on many different distressed situations in different Santa Monica neighborhoods over the past few weeks.

I thought it might be helpful to see if people have any particular preferences going forward as to what type of properties we feature here. Do you like to see condos or single family homes? Which zip code are you most interested in? Do you want to see just the most distressed situations or should we be highlighting other properties as well?

Any other thoughts, comments, requests, etc?

Idaho Preforeclosure - Lesson NOT Learned From Past Cycle

Address: 1105 Idaho #209 - 90403

Details: 714 sq ft condo - 1 bed/1 bath - $155 HOA fee

Description: Excellent location steps from stylish montana avenue shops and restaurants. Top private floor unit. Upgraded kitchen with sold maple custom cabinets, stainless steel appliances and granite counter-tops. Saltile tile throughout step-down living room. Bathroom has granite floors and bathtub. Tree-top views from 2 balconies. Secure parking space with storage above. Very low hoa. Ready to move-in! This is a short sale!

Sale History:

10/03/2005 $559,000

11/09/2000 $259,500

03/06/1998 $169,000

02/28/1990 $207,500

Listing Date: 5/14/07 (121 DOM)

Listing Price: $535,000 ($749/sq ft)

Not only is this a 2005 rollback and a "short sale" as noted in the listing description, but according to foreclosure.com, this unit has a notice of default filed against it. This means that not only does this owner want the bank to eat a loss (i.e. accept a short sale), but THEY ARE NOT PAYING THEIR MORTGAGE RIGHT NOW. Free rent!! Hooray!

Secondly, and probably more importantly, take a look at the sale history. Early 1990 seems to be right around the peak of the last major real estate boom in Santa Monica. The person who bought at the top in 1990 held it for 8 full years AND STILL TOOK A $30K LOSS!!

If we assume this short sale goes through at the current listing price (it most certainly won't though), we are looking at a loss of $56,000 or 10% if we include a 6% commission. Judging by the competition and the long DOM without a price cut, we need to see further reductions to get this thing to sell.

Bottom Line: "Trees don't grow to the sky" is another way of acknowledging that markets work in cycles. If this person who bought in 2005 had taken a moment to look back in time while evaluating the state of the current market, they may have found out that things aren't different this time. Instead, they will now possibly have to go through a short sale, or worse, a foreclosure to learn this lesson. The only thing that is "different" about this cycle is that many more people seem to be willing to just walk away from their homes whereas at least in this case, people in the 90s actually held onto property that they were underwater on for years.

$1,632/sq ft - WTF??

Address: 1517 Harvard #9

Details: 242 sq ft condo. 0 bed/1 bath. $158/month HOA fee

A couple of posts ago, "smlooker" alerted us to this property when he/she said:

My favorite all time open house was the one on Harvard Street near Broadway. 240 square feet for $400k. The agent just looked embarassed to be alive. I think the place is still available. Here is the description: Notice how almost every "highlight" involves actually not even being inside the unit, since if you spent more than 20 seconds indoors this thing you'd probably go insane from claustrophobia:

Description: Santa monica hideaway!!! Picture perfect small studio condo in a very desirable santa monica area. Walk to work at the nearby office complexes, workout at the spectrum club, stroll to restaurants and shops. This is a perfect pied-a-terre unit. Priced to be a great start in santa monica, or a place to crash after a long day of work, or for quick trips into town from sf or nyc! Light, clean, airy... Totally remodeled... Comes furnished with everything you need including dvd player & monitor!

Listing Date: 5/16/07

Listing Price: $414,000
Price Reduced: 05/25/07 -- $414,000 to $395,000

After 4 months on market, this place is currently asking $1,632/sq ft. Obviously with such a small square footage, the numbers get skewed a bit, but this is just nuts.

When I went on zip realty and searched 90404 for listings under $400K, I found 4 including this one...and one of them is a 2 bedroom foreclosure. When I searched for units under $500K, I found 12 and quite a few were 2 bedroom.

Here is the sale history of this unit:

12/17/2004:	$200,000
04/30/1998:	$56,000
07/15/1996:	$27,000

However, note that it currently comes furnished and says that it is remodeled (but how do you remodel 242 sq ft??).

The madness of the past few years will make us look back on things like this listing and say "what were people thinking?"

12th Street Short Sale

Address: 1021 12th St. #104

Details: 1 bed/1 bath condo - 722 Square Feet - $207/month HOA fee - 1.5 blocks north of Wilshire

Description: Nice open floorplan, great santa monica location, close to beach and shopping all offers subject to interior inspection subject to banks approval of short sale.

Purchase Price: $530,000
Purchase Date: 4/7/06

Asking Price: $585,000
Listing Date: 7/30/07 (42 DOM)

Price Reduced: 08/21/07 -- $585,000 to $575,000
Price Reduced: 09/07/07 -- $575,000 to $500,000

$/Sq Ft: $693

High end, 90402 week is over...now its back to the real world. Here we have an early 2006 rollback. If the seller gets their price and we assume a 6% commission, we are looking at a loss of $60,000 or 11.3% plus HOA fees, holding costs and other transaction fees.

Low end, 1 bedroom apartments (I mean condos) don't get pushed up to over $500K based on fundamentals. Many of these 1 and 2 bedroom condos that were purchased over the past few years were done so using very little or $0 down. We are just now beginning to see the hang over of this loose lending taking shape in the form of short sales and foreclosures.

This seller looked to be trying to "just break even" after the first price cut. Then, the mortgage market locked up and second, more severe price cut took place which forced this into a short sale situation. Look for more of this behavior right about now.

Sunday open house notes

A few observations from the handful of high end homes sampled today (90402 and one 90403)...

Funny staging items: Village People gold record (framed with album artwork), bags and boxes with designer names on them (blue Tiffany box, Gucci bags, etc) inside the master bedroom walk in closet, funny music/radio coming from the installed speaker systems in a few homes (Marvin Gaye singing "Let's get down tonight..."), "Finding Nemo" playing on every single flatscreen TV in the house (there was one in nearly every room in one of the houses).

Traffic: 312 24th is a new listing which had its first open house today. 3 bed/3 bath for $2.7 million. This place was very very busy. Lots of people walking through. This was a unique layout and was an original home that had some remodeling/additions done during the last 10 years. Great view from the rooftop deck. I think this will not have a hard time selling for $2.5 million or slightly above.

230 21st place was one of the spec homes listed 2 posts ago. The place was dead. One guy was leaving as I got there and then I was the only one there the whole time I was there. This gets an "F" for traffic as there seemed to be little/no interest. One positive note was the back house with a "grandfathered" in full bathroom.

The other few homes visited were not that busy but not completely dead.

Distress: 239 14th - Also a new spec home highlighted 2 posts ago. I observed the agent crossing out the listing price on each flier and writing in the new price of $4.0 million (it took 2 price cuts to get to this level). This price cut took place 9/1 according to zip realty. I also overheard the agent talking to someone saying that it was a good value and that the owners were done waiting around and really wanted to unload it ASAP.

848 25th - Another spec home, but has not been featured on this blog before. It is half a block south of Montana. Listed originally at $3.35 million, price reduced yesterday (9/8) to $3.175 million after only 40 days or so on market. Another price cut on a newly listed spec home. Not a good sign. I still need to see what happened with the spec house on Yale (south of Montana). Any info on it? Did it sell?

Anyone else see anything interesting at open houses this weekend?

90402 - Ocean view condo loss

Address: 311 Ocean Ave. #104 - 90402

Details: 3 bed/2 bath condo - 1,400 square feet - On corner of Ocean and Georgina

Description: "Ocean view and beautifully remodeled! Fabulous indoor/outdoor living and entertaining. Open floorplan. Immaculate kitchen with stainless steel appliances, maple floors thruout, 2 way fireplace. Fabulous views of ocean and park from dining, living and master bedroom. Security building. Don't miss this one!"

Listing Date: 6/9/07 (90 DOM)
Asking Price: $1,799,000
Price Reduced: 07/10/07 -- $1,799,000 to $1,725,000
Price Reduced: 07/25/07 -- $1,725,000 to $1,695,000
Price Reduced: 07/28/07 -- $1,695,000 to $1,635,000

Purchase Price: $1,627,500
Purchase Date: 5/31/07

The description says that the unit is remodeled but I can't tell if these owners actually did anything to the unit or not. They must be quick if they did improvements because they listed it about a week after they closed on the purchase. Anyways, without any improvements I don't know how the unit would have jumped over $171K in the week between their purchase and the listing...

After 3 months on the market, if this seller can get their current list price they will stand to lose over $90K or 5.5% assuming a 6% commission and ignoring holding costs. It seems like they had to have put some money into it (maybe just redoing a few surfaces?) to justify turning around and trying to get nearly $200K more than they payed. So if they put in maybe $50K and we include holding costs, we could instead be looking at something like a $200k loss or 12.3% assuming they get their current price.

With more restrictive financing terms, you would need $327,000 for a 20% down payment and an income of somewhere between $300K-$500K to afford this under "traditional" lending practices.

Bottom Line: Aggressive price cuts in July and now on the market for over 90 days. Is it time for another price cut? This is a classic example of why flipping can be risky and why it is generally a bad idea to try to sell real estate in the same year you bought it. You need a very strong market to cover holding costs and transaction costs and STILL come out with a decent profit.

I hope you have enjoyed our trip through 90402, one of Los Angeles' most prestigious zip codes, and some of Santa Monica's finest homes. Next week we may find a few foreclosures and take a look at what they can tell us about both this cycle and the previous cycle in the early 90s.

90402 - North of Montana pricing war

333 14th - 90402
5/6 - new construction
On market: 68 Days
Listing Price: $4.88M
Reduced: 8/4 - $4.725M



230 21st Place - 90402
6/6.5 - new construction
On market: 167 Days
Listing Price: $4.65M
Reduced: 5/4 - $4.38M



239 14th - 90402
5/5 - new construction
On market: 99 Days
Listing Price: $4.495M
Reduced: 7/27 - $4.325M
Reduced: 9/1 - $3.998M

Above are 3 spec homes which are currently for sale north of Montana. There used to be a time when properties like these would fly off the market without a price cut. Times have changed, even for brand new, top end properties in good locations. The two properties on 14th are on approx. 7,500 square foot lots and the one on 21st place is on 9,000 square feet.

Below are some more competitors. These homes are not new construction, and thus don't have the new construction premium.

202 14th - 6/4, corner Georgina lot (9,700 sq ft.) with pool, on market 104 days.
Price Reduced: 06/16/07 -- $3,858,000 to $3,529,000

557 12th - 6/5.5 1989 construction (7,500 sq ft lot), on market 93 days.
Price Reduced: 07/03/07 -- $4,195,000 to $3,995,000
Price Reduced: 09/05/07 -- $3,995,000 to $3,537,888

713 22nd - 6/5.5 1989 construction (7, 500 sq ft lot), on market 90 days.
Price Reduced: 08/10/07 -- $3,995,000 to $3,750,000

Take a moment to notice how the construction date for two of these houses is listed as 1989...wasn't that about the peak of the last cycle in Santa Monica? Very interesting.

Finally, there is 421 23rd. The house is a 6/6.5 new construction on a 8,700 sq ft lot. LEED certified with all the bells and whistles. The listing shows only a drawing of the home because it is not finished yet...it is "under construction". It has already been on the market for 104 days with its $5.0M pricetag. One of the last houses that I managed to notice with a $5 million price tag was 635 20th. It was huge, new construction, and ended up selling for $4.6 million on 3/29/07. So with over 100 days on market and not even done with the construction, will we see a price cut before the product is even complete? Will the $4.6 million sale of 635 20th earlier this year end up being a sign of a market top in the spec home game north of Montana?

Bottom Line: New construction spec homes are having to cut prices and are lingering on the market. Existing "premium" houses are also lingering and cutting prices. We have already seen how pressure is building from the "low end" with all the condo foreclosures stacking up. Now, there seems to be a bit of pressure from the top with the premier properties having to cut prices and still not selling. This puts pressure on tear down prices because there will be less demand from spec builders...the cycle goes on.

90402 - Kingman Ave - NOD

Address: 710 Kingman Ave. - 90402

Purchase Price: $1,700,000

Purchase Date: 10/30/01

Asking Price: $3,199,000 as of 7/13/07
Price Reduced: 08/03/07 -- $3,199,000 to $2,995,000

Description: "Stunning, sexy and sophisticated prime santa monica canyon, contemporary mediterranean, designer perfect. Move-in condition. Beautifully landscaped with a lagoon rock pool, spa and waterfall. Exquisite high-end custom finishes. Light, bright, and open with french doors and windows. Great lighting, electronics. Must be sold immediately. Priced under market for immediate sale."

Notice of Default Filed: 6/6/07

This listing caught my eye due to the language which I highlighted in red. It appears they certainly aren't hiding the distressed nature of this listing. They also seem to be aggressive on pricing. They cut the price $200K after a few weeks.

The reason for the distress is unknown. However, foreclosure.com is showing that a notice of default was filed 6/6/07. At face value this doesn't appear to be a flip gone bad or some sort of fraud...there are many other reasons why this person couldn't continue paying on time.

This blog has maintained that change happens at the margins. With the ongoing housing weakness, it is the sellers that "must" sell that will set prices. Must sell situations can take the form as seen above, they can be short sales, or if all else fails, the bank can take control and go through with a foreclosure. "Must" sell situations are akin to marking to market when a bond or CDO hasn't traded in months but everyone knows it is overvalued at its current price on the books.

This is a desirable, single family home in the 90402 zip code which means that is north of Montana. In fact, it is north of San Vicente, which some may argue is a bit more desirable location depending on personal preferences. We will keep an eye on this one to see just how much of a "must sell" situation this is. Over the next few days we will also be looking at some of its competitors south of San Vicente.