A Full Year Later...

Today marks the one year anniversary for this blog. Amazing how fast time flies.

In the year since our very first property was featured, we have had 225 posts and many more comments than I can tally up!

I won't spend the time to go over every milestone, but over the course of the last year we have had opportunities to look at short sales, foreclosures, rollbacks to 2004, single family home rollbacks, 90402 rollbacks, competition between units in the same building, potential cases of fraud, etc.

Our average unique visitor count is now over 500/day.

What I really want to say is, "thank you" to all the readers and contributors. Without all the e-mails and comments, this blog would not be where it is today.

Finally, the goal of this blog going forward will be the same as always. I am trying to observe what is really happening in Santa Monica's real estate market and I am trying to add value wherever possible. No kool-aid drinking and no conflicts of interest - just a detailed look at Santa Monica properties and what we can realistically expect to occur in the marketplace going forward.

Thank you again to all the readers and contributors. Here's to what appears likely to be another very wild and eventful year!!

$1M+ New Townhouses on Centinela

Address: 1311 Centinela #5

Details: 2 bed/2.5 bath 1,900 sq ft townhouse, new construction, $395/month HOA

Description: Eight romantic spanish courtyard townhomes with bright open floor plans, hardwood floors, soaring coffered ceilings and fine old-world finished. Upscale viking kitchens are highlighted by cherrywood cabinetry, travertine and granite abound, large laundry rooms, many with lofts and/or ocean view roof decks and all with private direct-entry 2 car garage. Open saturday and sunday 2:00pm-5:00pm

Listing History: 8/11/08 - $1,175,000
Reduced: 08/27/08 - to $1,049,000

Let's give a little color to the situation here and then get into financing. First off, we are looking at an eight unit building. I have no idea if any have sold already but I think it is highly unlikely. It looks like the developer is going with the typical approach and only listing a few units at a time (as to not "dilute" themselves too much). Of course the smart buyer isn't fooled and knows that ultimately there are 8 units for sale here and if you intend on being one of the first few buyers, you better be obtaining a damn good price as you know there is a bunch of inventory still to go. With this in mind, they have placed units #1, #5, and #8 on the market. They all have 2 bedrooms but the square footage varies along with the prices. I am featuring #5 here because it is in the middle in terms of price.

The big issue here for me is location. Whack this bad boy into Google maps and check it out. You are on the last street in Santa Monica and you are in 90404. Worse, Centinela is a semi-busy street with a light at Wilshire and a light at Santa Monica. You are also only 1 door off of Arizona which is also a semi-busy cut through street. If I am spending $1.1M, there is no way I'm going to put up with this.

Ok now let's talk financing. The financing analysis here has been done using the ORIGINAL asking price of $1.175M. This is because they just cut the price today and I had submitted the info to Jeff before the price cut. So you can reduce these numbers a bit to adjust for the cut (and reduce them a bit more considering these units are sure to continue to drop in price).

Once again, Full Disclosure: There is no monetary relationship or compensation of any kind being provided here. In an attempt to further "add value" to this blog, I am providing The Great Loan.Com (and any other real estate/lending professionals who may be interested in the future) an opportunity for some exposure in exchange for real-time, relevant, and valuable information.

The following information is provided courtesy of Jeff Bowman from The Great Loan.Com
Also, for more up to date mortgage market and macro based info, see The Great Loan Blog

Jeff Bowman can be reached at 877-884-7328 ext 802

Asking Price: $1,175,000

Income Requirement (using 5/1 ARM): $210,000 , assumes no other debt/obligations.

Downpayment Needed: $235,000

Monthly Payment on 5/1 ARM at 6.05% with property taxes and insurance estimated:$7039.03

Income Requirement (using 30Y fixed): $240,000, assumes no other debt/obligations.

Monthly Payment on 30Y fixed at 7.50% with property taxes and insurance estimated:$7945.62

The rates for 30Y fixed paper that are above the single family conforming limit of 729k in Los Angeles has improved a great deal in the last few weeks because two large investors have entered the market for super prime paper fixed paper. High FICO, large reserve balances(12-24 months) and lower loan to value scenarios. They are only looking at rock solid borrowers buying in semi-stable areas. Rates are higher for heavily declining markets like downtown LA.

Condo financing is restrictive at most banks. This is especially true if it is over 4 stories. The minimum down payment on a high rise condo is 30-40%. This steams from the enormous drop in prices for high rise luxury homes across the country(i.e. Miami, Las Vegas.)

Can I Get a Refund Please? *Update 2*

We first featured 517 Euclid back in May as our very first "refund" property. We then had our first update in June as the listing popped up again as "back on market".

Previous Purchase: 6/7/07 - $2,250,000

Listing History: 5/16/08 - $2,195,000
New BOMB price: $2,139,000

SOLD: 8/8/08 - $2,079,500 (7.6% rollback)

I figured this was a timely update to provide as some of you out there still think I am wrong about the fact that single family homes (even those in 90402) are under pressure and slowly starting to show declines.

It seems like anytime that 90402 gets brought up, people freak out. Let's take a step back and relax. The declines we are seeing aren't exceptionally huge and there aren't nearly as many signs of market stress as we see in other areas. Lot values have held up pretty darn well. But as I said before, make no mistake about it - houses in 90402 are under pressure.

Somehow there has been a very well told fairytale which a lot of people have come to believe about how houses north of a certain street and in a certain zip code would somehow be completely immune to declines. I have argued the whole time that this simply didn't make sense and wasn't realistic. I have also argued that this is going to be a long cycle and that the higher end areas (and especially SFRs) will lag the cycle. I won't go into the whole thesis again because I think arguing is a waste of time (and you can read all my past arguments from past posts), but I will come out once again and reiterate this thesis and say that so far, things have progressed in a similar fashion to how I thought they would (with the exception of the fact that SFRs up until recently have proven to be a little bit more resilient than I expected).

Speaking of Relisting....*Update 1*

316 25th was last featured here in April.


Previous Purchase: 10/4/02 - $2,475,455 (80% financing)

Old Listing History: 2/6/08 - $4,695,000
Reduced: 2/28/08 - to $4,395,000
Reduced: 3/24/08 - to $4,195,000

New Listing History: 4/23/08 - $3,995,000

SOLD: 8/15/08 - $3,810,000

The final selling price on this house was $885K (or 18.8%) less than the first asking price. This is a pretty much flawless house in a solid location on a good sized lot.

The agent(s) that sold this place are seasoned veterans in the high end 90402 selling game -- and it still took them 2 price cuts and a further reduced price relist to get this property sold.

This is how I have expected the weakness to progress. As I have said many times before, you can't sit here and expect prime houses in prime locations to gap down dramatically right away. What happened with this case here was that the first asking price was too high AND the in the months that it took for this seller to accept reality, the market took a quick leg down as financing became much more expensive. So we certainly can't sit here and say "look, this house fell by 18.8%". However, I think there is no question that the final selling price here is materially lower than what this house would have fetched at the peak of the market.

There are many different signs of market stress and decreasing prices. It is true that we haven't really seen non-location discounted lots sell for below the magic $2M mark yet (except for 219 23rd), but make no mistake -- 90402 is under significant pressure.

Bailing Speculators in 90403 *Update 2*

1018 Yale was first featured back in May and then our first update came in June. This was a case of a bailing speculator who bought recently. The listing was advertising "finished floor plans". How many times have we seen this before??

Previous Purchase: 12/5/07 - $1,375,000

Listing History: 5/9/08 - $1,629,000
Reduced: 05/24/08 - to $1,599,000
Reduced: 06/17/08 - to $1,529,000

SOLD: 8/14/08 - $1,337,500 (2.7% loss)

In the last update, I said the following:

"I have a hard time believing that they will get a bid anywhere near $1.5M"

This seller didn't suffer a huge loss on price (only $37.5K), but if you throw in all the holding costs and the selling commission, you are easily into six figures. The initial asking price was obviously a complete joke as this seller was hoping for a massive payday in a short period of time (and during a declining market).

As I said here, "SFR rollbacks are about to become more and more common. Patience is key"

Thinking (Wishing) Buyers Are Stupid *Update 1*

1524 Franklin #A was last featured here in March. Remember, it is a tiny unit. I think the seller got extremely lucky to unload this at this price.

Previous Purchase: 7/27/05 - $445,000

Listing History: 3/19/08 - $419,000

Sold: 6/5/08 - $375,000 (15.7% loss)

How Foreclosures Bring Down Values *Update 1*

We previously featured 2519 Kansas #109 and #110 back in March.

#110 was on the market forever and then got under cut by #109 as it came on market as a foreclosure. As far as I know, #110 has not sold (not surprising).

#109 Previous Purchase: 8/3/06 - $630,000

Failed to sell at $640,000 last year

REO on 1/16/08 - Unpaid Debt Listed as $544,890.31

REO Listing History: 3/5/08 - $549,950

Sold: 4/21/08 - $549,950

Some people have been interested in knowing if we are anywhere near a bottom for condos. Just using this situation as one example, it is clear we are still very far away. The non-foreclosure unit (#110) failed to sell and is added to the shadow inventory and the still overpriced foreclosure actually got sold at asking...When knife catchers like this buyer here continue to show up, we are nowhere near a bottom. See the discussion last time about where 2003 or 2004 values would be for these units -- And yes, I still expect poorly located units like these to roll back to at least these values.

If you still aren't bearish, just take a look at where financing costs and requirements have gone over the past few quarters...more on this next week.

Santa Monica Homeless

The issue/topic/subject (or even "problem" if you prefer) of the homeless in Santa Monica has had a funny habit of making its way into the comments section of this blog as well as Westside Bubble on a not infrequent basis.

I had recently suggested that maybe having a post dedicated to the subject would be a good opportunity for everyone who is passionate about this subject to get their thoughts out. I think that we can generate a valuable conversation if we keep it that way -- a conversation, not an argument.

You should abstain from argument. They are very illogical ways to convince people. Opinions are like nails: the stronger you hit them, the deeper inside they go.
-Decimus Junius Juvenalis

On the topic of the homeless, I recently received an e-mail from a reader with the following link. I was especially surprised to see the following from this article:

But in 2002, under pressure from businesses and residents, the Santa Monica City Council passed ordinances making it illegal to sit or lie down in downtown doorways and limiting free outdoor meals. As a result, the city made the National Coalition for the Homeless' "20 meanest cities list," said Michael Stoops, the advocacy organization's acting executive director.

It would be interesting to see how most of our readers feel about the homeless issue. Please keep it clean so I don't have to end up deleting a bunch of posts. Finally, note that for various reasons (mainly because this is a housing blog), I will not be sharing my feelings on the issue and this blog is taking no official position on the homeless issue in general or in terms of its relation to property valuation.

Sunset Park Buyers Want Refunds Too *Update 1*

Just in case you were tired of the updates on the condos, here is a 90405 house.

We last featured 2432 32nd back in June.

Previous Purchase: 8/31/05 - $1,350,000

Listing History: 6/21/08 - $1,387,500

Reduced: 07/28/08 - to $1,287,500

If you want a little color on the location, see the comments section from the previous post on this property. Since this thing has now had roughly 3 weeks since its price cut and is still on the market, I would imagine that they won't get their current asking price.

SFR rollbacks are about to become more and more common. Patience is key.

26th and Arizona - Rollback *Update 1*

We last featured 2502 Arizona #3 back in February. This was an upgraded 2 bed/2.5 bath unit.

Previous Purchase: 8/31/05 - $675,000

Current Listing: 1/28/08 - $719,000
Reduced: 02/14/08 - to $679,000

Sold: 4/23/08 - $630,000

This seller was extremely lucky to get out at this price as since this sale, 2 more units in the same complex have come on the market at around $650K -- But they are both 3 bedroom units and this one was only 2 (albeit with upgrades). One of the 3 bedroom units is still on the market and it looks like the other disappeared.

Abusing Your Own "Product" *Update 1*

We previously featured 1138 15th #4 back in February. It was a case of a mortgage "insider" taking a steep loss after buying a property too close to the peak of the market.

Previous Purchase: 6/27/06 - $800,000

Listing History: 2/10/08 - $699,000

Sold: 4/29/08 - $660,000 (17.5% loss)

$1M+ Townhouses

Address: 933 15th #C - 90403

Details: 2 bed/2.5 bath 1,717 sq ft townhouse, Year 2000 construction, $320/month HOA

Description: Absolutely magnificent mediterranean townhome steps to montana, none can compare to the light, volume and atmosphere! Exquisite & stunning! 2 bedrooms, 2 & ¿ baths, plus large loft overlooking the living room with 2-sided fireplace, 2-story ceilings & an abundance of windows & light. Unbelievable roof top sundeck w/ocean views. 2 balconies, patio & 2 car direct access private garage. Spectacularly beautiful wood floors, fabulous kitchen w/top of the line stainless steel appliances.

Previous Purchase: 8/8/03 - $815,000

Listing History: 8/12/08 - $1,329,000

This property was brought to my attention thanks to an e-mail from a reader.

Notice how the seller is hoping to lock in a gain almost exactly equal to the tax free limit? I think they are going to have to settle for much less...

Here is the latest comp from the same building:

Unit D: 11/14/07 - $1,300,000

Now ask yourself if you think that you should be paying a premium to what was paid 9 months ago.

As discussed on this blog in previous posts, I think the higher end condos and townhouses are in for a pretty rough time. This is a segment of the market worth paying close attention to.

Face Lift on 25th *Update 1*

We have followed 1015 25th for a long time now. We first featured it back in October 2007 when it was part of our negative cash flow series. The owner (who happens to be a developer and have his real estate license) bought it back in early 2007 for what appeared to be a pretty good price (1/12/07 - $1.2M). After sitting on the property for a while, it was put up for rent at $4,500/month where it sat and sat because they were asking too much for a near tear down quality house. The original photo is to the left.





We then had our first update in January 2008 when we found out the house (same condition as above) was also listed for sale at $1.475M. Of course, like any bailing speculator, our seller was generously providing "preliminary plans for a contemporary new home" -- while at the same time, the house was being sold "as is".

After nobody wanted to overpay to rent or purchase this place, we saw a face lift begin to occur when we featured it here. See photo to the right.


Finally, the work was done, high end landscaping was put in (cough, cough), and it was put back up for rent on Westside Rentals. I'm not sure how much they were asking this time around but it appears to now have people living in it. I don't believe this sold, so I wouldn't be surprised to find this thing back on market at some point as the negative cash flow game isn't all that fun to play for extended periods of time.

If anyone else has any info to provide here it would certainly be helpful. I'm adding this property to the "shadow inventory" as of now.

Ashland Architectural Rollback *Update 1*

Lots of competition on Ashland...and seems like they are all owned by real estate agents as well. Looks like a stable, bull market to me.

We last featured 1621 Ashland in October 2007.

Original Purchase: 10/31/05 - $1,450,000

Old Listing History: 8/13/07 - $1,675,000
Price Reduced: 09/06/07 - to $1,650,000
Price Reduced: 09/20/07 - to $1,610,000
Price Reduced: 10/17/07 - to $1,585,000

New Listing History: 4/28/08 - $1,479,000
Reduced: 07/08/08 - to $1,415,000
Reduced: 08/11/08 - to $1,399,000

This agent owned house is still not cheap enough. After sitting on the market throughout the "selling season", this place didn't get any bids. So now a $16K price cut is going to elicit a bunch of excitement and demand? Get real. I'm too lazy to load the picture but this seller is now being "put on notice".

And what is up with all the agent owned speculation on Ashland? Is Kool-Aid added to the drinking water up there or something?

Ashland Box Ticker

Address: 1710 Ashland - 90405

Details: 3 bed/2.5 bath 2,770 sq ft house, 7,000 sq ft lot, "renovated"/upgraded

Description: Completely renovated in the summer/fall of 2006, this wonderful home had nearly 150sf added to the master bedroom, an extraordinary kitchen and modern touches throughout. A guest house/office in the garage has a full bathroom with a total of roughly 200sf. This is a very welcoming home from the curb appeal to the large amount of space in each and every room.

Previous Purchase: 6/8/06 - $1,429,000

Listing History: 7/15/08 - $1,628,000

Good interior square footage, good lot size, Interior appears to be upgraded to "move in ready" status. Also has a back house which is nice. As far as I can tell, there shouldn't be any major location discounts (but I don't know this area well so please correct me if I'm wrong). So here we've got a house that "ticks all the boxes".

Looks like the upgrades and square footage additions were done AFTER the last purchase. This means our seller here isn't being exceptionally delusional and hoping for an outrageous profit. So maybe you chop off a hundred grand or two and you might think this is a pretty decent deal, right?

Well, then you look at the purchase before the last one.

4/9/03 - $695,000

As I said before, it looks like this house wasn't upgraded until after the current seller bought it. That would make the 2003 and 2006 sales "apples to apples"...and it also means that you are looking at a quick double in price in just 3 very bubbly years.

With this seller having bought pretty close to the peak, I don't see how you can be comfortable here unless you see a very large price cut from the current asking price.

This house is a good example of the whole reason why people (like myself) think that we could see a prolonged cycle where prices bleed slowly for several more years. There is nothing here that necessarily suggests that the property NEEDS to be sold. But seller expectations are often very far away from where the market is. This is especially true as financing conditions get tighter and tighter in a relatively quick fashion. The bid/ask spread has widened no doubt (see stats available all over regarding the drop off in number of transactions). Real estate bubbles take years and years to work through...even in Santa Monica. Eventually we will find stability and form a base which will be called a "bottom", but don't look for it this year.

LOCATION, LOCATION, LOCATION (and lot size)

Address: 1255 24th - 90404

Details: 4 bed/3 baths (+ a couple half baths) 3,600 sq ft house, 5,305 sq ft lot, new construction

Description: Premium new construction in Santa Monica, approx. 3600 sq. ft., 4 BDS, 3 BA’s, 2 ½ BA’s. Grand office with separate entrance. Soaring sun-drenched 30’ foyer 2nd floor mezzanine art gallery. Majestic living room with exhilarating volume. Romantic master aerie, master bath with mosaic Vitreo tiles from Italy, Tau Corten tiles from Spain. Chef’s kitchen with Gaggenau appliances. Handsome Javan “wide plank” bamboo flooring. Located blocks away from fine dining, wonderful parks and Whole Foods."

Property Website

Previous Purchase: 9/28/06 - $970,000

Listing History: 8/4/08 - $2,695,000

There are three rules in real estate and this property is breaking them all. For Santa Monica (and other high land value areas), a fourth rule exists --> LOT SIZE. This property breaks that rule as well.

There was a bit of discussion in the last post about this property and clearly people are interested (or puzzled) by it, so here are some more thoughts on this property.

The house itself appears to be nicely done and had some very unique aspects to it. I thought the layout was interesting and liked the patio on the side of the house which was accessed via large sliding glass doors.

But let's get real and talk about what is happening here. There are virtually NO single family homes in this area of 90404 (just south of Wilshire). The only ones still around are likely old shacks just waiting to get torn down (and condos/townhouses are the most likely new product to be built). So the rule of "don't have the best house on the block" almost doesn't apply here since there aren't any other houses around! So after shelling out $2.7M you are going to get to look around at crappy, run down multi-unit buildings and have a bunch of non-SFR owning neighbors. This certainly is not a positive, if for no other reason than the fact that the street will be lined with cars and you are in a permit parking zone (this is a nusiance).

The location here is also negatively impacted by the fact that this is 90404. That means you will get the same middle school and same high school as 90403 and 90402, but you don't get the excellent elementary schools of these other zip codes. I stand behind my argument that if you are spending anything near this amount of money you don't want your kids going to McKinley. BUT, you still have the option of sending them to private schools which would negate the school district issue.

But the elementary school issue comes right back up again because you are just a few doors away! I don't see this as a positive thing here.

Finally, lot size. SMALL. The argument that might be made by a real estate agent here would be that you are getting a great SFR which is well done and unique and you are saving a good chunk of money by not being a few blocks north in 90403 or 90402. However, these other zip codes have larger lots with yards. The lot here is small to begin with and then with the large footprint of the house leaves about 0 yard. If you want to take it even further, you could likely go into 90403 and get a spec house for not much more money.

With all of these things to take into account, I will argue that this house is way overpriced at $2.7M. I think we need a pretty substantial few price cuts before we get back to reality. Good luck.

22% Loss Foreclosure *Update 1*

We last featured 229 Bicknell #105 back in February when it was listed as a 22% off foreclosure. Remember, this was a 600 sq ft 1 bed/1 bath condo.

Previous Purchase (Person): 8/28/06 - $525,000

Bank Buyback (WaMu): 7/5/07 - $481,000



Listing History: 9/30/07 - $480,000
Reduced: 11/27/07 - to $456,000
Reduced: 12/28/07 - to $433,200
Reduced: 02/02/08 - to $411,550

SOLD: 6/3/08 - $360,000 (over 31% off from peak price)

90402 - Kingman Ave - NOD **Update 2**

We last featured 710 Kingman back in February when it was on the market and claiming that an auction would be held on March 1, 2008 at the property.

So what happened at the auction? My guess is no real bids as Property Shark is showing documents that make it appear the lender took back the property at the Trustee's sale.

The documents list the unpaid debt at $2,209,214 and this is also the amount that the property "sold for" on 5/8/08. So next up, REO listing?

"Green on 19"

Address: 1035 19th #4 and #5

Details: 2 bed/3 bath townhouses, 1,650 - 1,700 sq ft, $475/month HOA, green features

Description: Developed, designed, and constructed wit pride (WCSM edit: If you are going to talk about doing something "with pride", you better not be making typos...spell check won't catch "wit"!), passion and environmental sensitivity, these one-of-kind modern, custom-crafted townhomes have been featured in the la times home section. After selling out the majority of this north-of-wilshire project with its state-of-the-art green technologies, rooftop deck ocean views and access to the best public elementary school in the area, the two remaining homes are subject to reduced list price and a generous incentives package to ensure a quick sale.

Listing History (unit 4): 5/7/08 - $1,380,000
Reduced: 07/30/08 - to $1,359,000

Listing History (unit 5): 2/20/08 - $1,360,000
Reduced: 07/30/08 - to $1,339,000

People have mentioned these townhouses in the comments section before. After months and months of seeing those green signs all over street corners every weekend, we finally get a break in price. But price cuts of roughly 1.5%??!! Really?

Really, really?!

Well maybe there is more..."generous incentive package"...now that got my attention. But the credibility is already lost as anyone who is going to jerk me around and waste my time with 1.5% price cuts certainly doesn't have much credibility or ability to use the word "generous". But maybe we are being too rough here. Can anyone out there tell us just what these generous incentives might be?

Secondly, can anyone tell us what the selling prices were for the 3 other units which the listing is claiming sold already. I am highly suspicious here that we really got 3 legitimate sales on the open market. Property Shark isn't giving us any help and Zillow appears to have a manually entered "3 sold" pop-up. In a rough market, selling $1.3-$1.4M townhouses is a challenge. So it makes sense to keep some supply off the market. Not calling anyone a liar here (yet), but I am remaining skeptical until proven wrong.

Third, notice the discrepancy between original listing dates that Zip Realty is showing. Can someone fill us in on when these were really first listed?

Finally, let's talk price, quality, and desirability of the units. From the numbers standpoint, I just don't get it. I don't understand the concept of spending nearly $1.4M on two bedrooms, not even having any land of my own, and finally to top it off, being saddled with a $475/month HOA liability. Also note that there is a lot of competition in the $1M+ townhouse market out there right now. Given financing issues and overall market deterioration, I think this segment is extremely vulnerable here. And new construction health? Well just look at the high end units on 20th and Idaho that got pulled somewhat recently (we featured them on this blog).

For the actual units here I would have to say that points should be given for creativity. But when you start looking at the more important aspects such as layout and actual practicality, I think those points come right back off and then some. Ultimately, go tour them yourself and make up your own mind -- that is always the best way to do things. But if you are interested in these units, I would make sure you get some serious answers to some of the questions that I have raised here. I see lots of downside here.

Oh and to tie into our last post...for just about the same price you can go over and buy the Chelsea house!

90403 Cost of Entry

Address: 1030 Chelsea - 90403

Details: 3 bed/1.75 bath, 1,319 sq ft house, 6,118 sq ft lot - sold "as is" and "needs TLC"

Description: No showings until caravan august 5th 11 am - 2 pm. Traditional 3 bedroom 1.75 bath 1940's house one block from wonderful douglas park! Original detail throughout. Original wood flooring is throughout although carpeted in common areas. Two original fireplaces, one in liv rm & one in 3rd bdrm. Wood paneling in master bedroom for the rustic at heart. Laundry off kitchen. Wonderful, quiet tree-lined street. Large yard to landscape to your heart's desire. Rv parking in rear. Needs tlc. Sold "as is".

Previous Purchase: 1978 - Long time owner

Listing History: 7/31/08 - $1,399,000

We have had readers indicate interest in this house as it is currently the cheapest SFR north of Wilshire on the market. I thought this would also be a good time to talk about financing so we can see just what you might need to get into a property at this price and in this tighter credit market.

I have been hinting recently that I think the financing component of purchasing is getting harder and harder and also more and more important. Interest rates have also risen as capital is more scarce and risk premiums are higher.

The following information is provided courtesy of Jeff Bowman from The Great Loan.Com
Also, for more up to date mortgage market and macro based info, see The Great Loan Blog

Jeff Bowman can be reached at 877-884-7328 ext 802

Full Disclosure: There is no monetary relationship or compensation of any kind being provided here. In an attempt to further "add value" to this blog, I am providing The Great Loan.Com (and any other real estate/lending professionals who may be interested in the future) an opportunity for some exposure in exchange for real-time, relevant, and valuable information.


Income Requirement (using 5/1 ARM): $251,880 , assumes no other debt/obligations.

Downpayment Needed: $279,800

Monthly Payment on 5/1 ARM at 6.05% with property taxes and insurance estimated:$8396.19

Income Requirement (using 30Y fixed): $297,040, assumes no other debt/obligations.

Monthy Payment on 30Y fixed at 8.50% with property taxes and insurance estimated:$9901.34

Discussion:

The rates for 30Y fixed paper that is above the single family conforming limit of 729k in Los Angeles has been in the 8% range for the last few months. There is very little investor interest in fixed paper that isn’t Fannie/Freddie. So the banks/Wall St are pricing the 5/7Y ARMs in the 6-7 range and 30Y fixed in the 8-9% because they anticipate much higher rates in the future. Many institutions will not even do 30Y fixed for loan amounts above conforming.

Of course it is a full doc only environment for most clients. Unless, the client has roughly the loan amount in liquid assets: stocks, bonds etc then stated is allowed. The DTI limits for the most aggressive investors is 40% total. All debts and obligations plus the full PITI.

So here it is. The cost of entry to the SFR market north of Wilshire. I'm thinking it might be helpful to go through similar exercises every few months (or every quarter or so) in order to see how the financing picture is changing as well as where prices are moving. Put the two together and you can track just what you need in order to attain the holy grail of SFR ownership in 90403.

2 Bedrooms in 90403 < $1M **Update 2**

We last featured 1044 10th #5 back in February. Note that it was the very first property that we "put on notice".

The owner did the smart thing and listened to us. Swallow your pride, put down the glass of koolaid, take the quick pain, and accept an offer well below list price. Just think about how much more they would have had to cut their price if they held on and insisted on being firm with their asking price. All and all, sucks for the new knife catchers.

Previous Purchase: 3/22/06 - $968,000

Listing History: 11/1/07 - $985,000
Reduced: 02/13/08 - to $949,000

SOLD: 3/27/08 - $889,000

This appeared to be a pretty nice unit. Almost 1,600 sq ft, direct garage access, rooftop deck, upgraded baths and kitchen, etc.

The problem is that it was still only 2 bedrooms...and it went for nearly $900K. I still see a lot of downside here over the next few years.

Speculating With Some "Aloha" Attitude

Address: 1328 Hill Street - 90405

Details: Heavy fixer? with approved plans and permits to remodel. 1,300 sq ft house on 6,440 sq ft lot

Description: Superb location at the top of the hill. Build on to and remodel existing home into an approx 1800 sq ft beautiful custom cape cod + a new 400 sq ft garage. Included in the sale are active and paid permits, architectural plans signed and stamped by the city, and all required reports to start construction today. Bring your contractor. By appointment with qualified buyers only. Please call list agent 2 for details and appointment.

Previous Purchase: 7/10/07 - $1,050,000

Listing History: 6/30/08 - $1,278,000
Reduced: 07/23/08 - to $1,178,000

Here we have a case of a seller who was bullish enough in mid 2007 to not only purchase a property, but to have also gone through the process of getting plans and permits drawn up and approved. Kinda makes you wonder if they got bearish all of a sudden in the last 6 months or so, eh?

And who might our owner who just found religion be? Why, one of the listing agents for the property of course.

As far as valuation goes? Well, we have to acknowledge the weakness that we have had over the last year. We also have to take into account much tighter lending and higher rates. That should bring us to a valuation lower than the previous purchase. Then add on whatever you think the approved plans and permits are worth (I personally would heavily discount these items). So from here, I would say about another $100K price cut is going to be needed to start to attract some real interest.

I won't go too much into the whole real estate agent owned speculation (and subsequent bailing from the market) discussion. Simply put, just think about the whole picture for a moment. Think about what this is a sign of. Think about the implications for supply and demand as well as the incentives for various parties in the market to provide true, impartial guidance and analysis.

"D" Stands For Default *Update 2*

1524 Franklin #D - 90404 was last featured in March.


Previous Purchase: 8/29/06 - $640,000

Listing History: 12/17/07 - $463,500

Two further price cuts later - $405,500

Sold: 4/29/08 - $405,500

This selling price is a dramatic 37% off from the last sale.

Another Agent Owned Flop - Oops, SM Isn't "Different" Enough To Prevent This Loss *Update 1*

924 5th Street #10 was previously featured here back in November 2007.

Previous Purchase: 3/8/07 - $1,054,000

Listing History: 10/12/07 - $1,149,000
Reduced: 11/3/07 - to $1,075,000
My crystal ball is a little cloudy here but I believe this property may be in default and potentially going through the auction process. Someone posted a link to an online list of properties in default not too long ago and I recall this property was on it. I can't find that link for some reason so if anyone has it, please help us out. I checked out RealtyTrac and I believe it shows this property's status as "auction". Can someone please help us out here.

While we wait for some help, here is a video tour of the property I came across. Enjoy.

$1,000/Sq Ft , One Bedroom Flip...Will A Greater Fool Appear?? *Update 1*

We previously featured 911 21st Street #A back in November 2007. Here is what I said last time regarding the size and number of bedrooms (listing claims 2 but I think 1 is more realistic).

The first thing to note is that the listing is claiming this condo to be a two bedroom unit. But Zillow and Property Shark show it as a one bedroom. The listing is claiming that the "office" is the second bedroom, but in reality it is too small and not separated so I don't know how it could really act as a second bedroom. The whole unit only has 714 sq ft so size is an issue here...

Our update today comes because the owner here is still delusional and is now playing the relist game.

Previous Purchase: 10/10/06 - $599,000

Listing History: 8/10/07 - $749,000
Reduced: 9/28/07 - to $719,000

Relist History: 7/1/08 - $699,000

As discussed last time, this owner did some upgrades. However, given how much further the market has fallen over the last year (especially the condo market), and given how much harder it is to get financing, I don't think this unit should sell for more than the original purchase price (i.e. upgrades will represent the depreciation since the initial purchase). In fact, I would go even further and suggest that it should fall even further over the next few years.

The fact that this seller only reduced $20K since the last price almost a year ago shows that they are either highly delusional or highly desperate (i.e. not actually able to reduce anymore because otherwise they would have to bring a check which they don't have to the closing table). This is another case of "know your seller". You don't want to deal with unrealistic sellers and you certainly don't want to deal with sellers that can't physically reduce to market.

If this seller got real and cut a quick $50K off the price, they might get some interest and a bid somewhere in the low $600s. This unit is in a good location and has a nice front patio area so there are some positives -- however, if they don't get serious real quick, I can see this thing drifting in value by at least another $100K+.

It is tiny...you can barely squeeze one person in the kitchen and there is virtually no room on the sides of the bed in the bedroom. Here is a link to the listing for more photos