Address: 933 Harvard - 90403Details: 3 bed/2.5 bath 2,386 sq ft house, 7,875 sq ft lot, "remodeled"
Description: Very charming remodeled 30’s 1 sty Trad, in the desirable “College Sts” of SM. Meandering brick walk & inviting covered entry porch lead to pristine, well-detailed & inviting hm w/ wd flrs, mldgs, high clgs & ideal flr plan. FLR w/ FP & lg FDR. Cook’s kit/fam rm opens to lg grassy yd & detached office. 2 BR + den (which can be easily converted into 3rd BR) & 2½ BA. Spacious mstr w/ vaulted clg, French drs & beau Travertine bth. Quiet, tree-lined st in Franklin School dist. An absolute gem!
Previous Purchase: 12/18/98 - $710,000
Listing History: 1/14/10 - $1,849,000
I have not walked through this property but from the photos and description it looks nice and I think it will attract a lot of potential buyers. Solid location, good square footage, and it has been remodeled (I'm guessing after the 1998 purchase). The only real downside I see is that the den is being counted as a 3rd bedroom so it isn't really a 3 bedroom house...
To check valuation, I'm going to compound 4% (inflation + small premium) over 12 years and we get about $1,140,000 as our inflation adjusted value. Then, assuming the remodel was done after the 98 purchase, you need to add in whatever you think is fair for the remodel cost. From the photos it looks like kitchen and bathrooms were redone as well as other cosmetic items. I would need more info on what was done in order to figure out a value range.
Finally, since it is my opinion that prices still have downside remaining, you can add in a "bubble" component since I think current market prices still reflect some bubble. *note - this is a big reason why you may not want to buy yet unless you come across an exceptional value, because you are more likely to find properties with less and less bubble premium over the next year or two*
So roughly speaking, I think this is worth: $1.14mm + remodel value + "bubble premium".
I think it will have a tough time selling for close to the asking price, but the sellers should have room to cut and I think they won't have a hard time getting bids at lower levels. So, where does this sell at?
Why even 4% when inflation has generally been under 3%? At some point you start to wonder why housing prices rose at all over the past decade when the economic fundamentals of the state have not. Wages have been stagnant here for a decade. There has been outward migration from the state. The state government is a mess. Yes, Santa Monica is beautiful, but it was beautiful in 1998 as well, and even $700,000 is a huge premium over what this house would command in many other parts of the country. So what changed?
ReplyDeleteIt looks like a nice home in a good area. For inventory like this in Santa Monica I still think you throw logic out the window. In this area there always will be the buyer who falls in love and pays whatever it takes. 1.8 I agree is steep for this but I wouldn't be surprised if it goes for 1.5+... I wouldn't want to pay more than 1.4 (mostly following the logic you spell out, but Santa Monica continues to prove to me that it is not a logical market.
ReplyDelete"$1.14mm + remodel value + "bubble premium" "
ReplyDeleteGood analysis. This should be the model of how quick back-of-envelope valuation guesses are done.
Regarding the comments, I would remind everyone that what something would likely sell for today is an entirely separate question from what something would sell for in a non-Bubble environment (e.g., how much value could this place lose when the Bubble deflates in SM).
We won't know for sure until the next phase of the correction is under way. For now, I would guess this could sell around $1.45 million, which is slightly more than teardown value for this small 2 bedroom, and includes a "padding" of 30% for the Bubble.
Personally I'd stay the hell away from this listing and rent something much nicer for $3,000 a month, pocket the difference and buy after the Bubble finally gets corrected in this area.
"Wages have been stagnant here for a decade."
ReplyDeleteMaybe the overall median wage is stagnant, but not the median wage of the people who want northern Santa Monica.
This place looks nicer that the one on Chelsea that just sold for $1.6 million, well over asking. My guess is $1.7 million.
ReplyDeleteWarchest, I generally agree with your takes, but your analysis seems way off on this one.
ReplyDeleteTake a look at 1015 24th St., a property you featured in this blog as a "good relative value." It recently got snapped up at $1,558,000 before even hitting the open market, and that price reflected a discount for avoiding brokers' commission. On the open market it likely would've gone for $1.6M. That house was over 500 square feet smaller than this house. That lot was over 1,600 sq ft less than this lot (and on an alley). That house, though charming I'm sure, was not redone and in what appears to be pristine shape like this house.
There's also the recent sale of 1027 Chelsea, snapped up right away at $1.6M. That house was also substantially smaller than this Harvard house, on a substantially smaller lot, and, in my opinion, not located on nearly as nice a street.
This listing clearly will not go for less or even a comparable price to these other two houses. It will sell for substantially more. I'm not saying what the value should be, I'm just looking at comps and figuring what the value actually is today.
And as for the statement above that one could rent a nicer place than this house for $3K/month, are you serious?
I don't see $3000/month as the rental value, but I do think that the most relevant valuation metric, by far, is to figure out the rental value and either use that to calculate the present value of future cash flows to get an estimate of value, or, with less rigor, just compare the rental to the cost of an interest only 30 year mortgage.
ReplyDeleteSo what is rental value? $4000/month? $5000? Just realize, you'd need to estimate it at nearly $10,000/month to justify the current asking price.
I'm not saying some fool won't pay that, just that they are still a fool. People were also happy to snap up Yahoo at $200 a share in 2000.
Rent is minimum 5K and I would not be surprised if is 6K plus.
ReplyDeletePayment (incl. tax and ins) is about 10.3K w/ int only, no down, 5.5% int rate. After tax break, payment is about 8.6K (assuming no property tax break due to amt and 1M cap on mortgage interest.
Payment (incl. tax and ins) is about 10.3K w/ 30yr, 20% down, 5.5% int. After tax break, payment is 8.6K.
A slight uptick in rates to 7-9% and the pre-tax payment goes up 20%-50%/month, respectively.
Price to annual rent ratio at 6K rent and the LA average of 16 indicates a price of $1.15M, under the estimate by Warchest, which adds the remodel value.
If you think SM is somehow not affected by price to rent ratios, go back to 2002 prices and rents. You will see that they are about dead on the LA average over the past 15 years.
This would rent for 6K/month easy.
ReplyDeleteExcellent Data Digging As Always! Between Calculated Risk and The Big Picture a guy can make some serious $ with your insights. Like avoid buying high end Westside for two more years. I say 1.5m Thanks.
ReplyDeleteCharlie Rose which not enough people watch because he is on PBS did an excellent interview with Prince Alwaleed. I have known of the Prince for sometime because of his massive ownership stake in Citigroup. But most recently they purchased The Four Seasons Hotel brand along with Bill Gates. The interview is wide ranging from the Middle East, his investments, global change, China. Take a look. If you get bogged down with the Mid-East political talk Charlie draws him into, just skip ahead as there are some real insights here.
www.thegreatloanblog.com
Mr Jumbo Mortgage
I'm not convinced that there will be a further downside. I think we are on a plateau for quite a while longer. 700k in 1998 is worth 1.55mm now. Lot value plus improvement with a nice enough house.
ReplyDeleteNo. We have another serious leg down.
ReplyDeleteThe stimulus was too small, it will start seriously running out of steam by the end of this year, there will be no political will for more stimulus because Republicans are idiots. Not to mention, there are several significant economies that just don't have more fiscal bullets to fire. We are merely in the eye of the storm.
Several people have taken a stab at coming up with a valuation for this house, and by every quantifiable measure, it looks too high. Anyone saying it's not too high can't point to anything but similarly ludicrous comps. It's just a slightly less frothy version of the tired 2007 arguments.
Similar comps are the best way to estimate what this house will sell for, whether you think they are ludicrous or not. This post is titled, "what will this sell for?" The other quantifiable measures are more suited to a post titled "what should this sell for?"
ReplyDeleteSnore....it always sells for more than you think it should!!!!
ReplyDelete"Republicans are idiots"
ReplyDeleteComing from epsilon, that is too cute. As Steve pointed out, you've completely missed the whole point of this post. But then, what's new?
Remarkably similar reaction to my comments about the market being overvalued in 2007. But then, what's new?
ReplyDeleteYes Epsilon, you saw a bubble in 2007, after about 5 subprime lenders went t_ts up. Wow, you're like, my hero or something.
ReplyDeletedwr, you have to take some of these comments with a grain of salt. Several people here have been calling for a 20% drop in 90403 prices for over a year. Its kind of like if I were to say LA will have an earthquake this month. When it doesn't happen I say it will happen next month. If it eventually happens after a year of me saying there will be an earthquake I can claim I knew all along. If it doesn't happen I can just slip away anonymously.
ReplyDeleteMost of these commenters that have been claiming a 20% drop in 90403 prices are the same way. Prices are up in 90403 over the time they have been saying prices will drop. Even though they missed their initial 5 predictions they just keep saying it will happen this quarter.
Blogger (nice name),
ReplyDeleteI've been following these blogs since before warchest was calling himself warchest. Prices have further to drop, without question- if rates were where they should be, this thing would likely be back to 2002 prices. But that wasn't the question warchest asked. I was simply responding to a proven idiot calling an entire group of people idiots. That's all.
You're right, it really is idiotic of me not to realize that, if the title of the blog includes a question mark, all comments to that post must respond precisely to that question. Even more idiotic for me to talk about how the economy might have an impact on real estate prices on a real estate blog. Thank you for showing me the way by keeping all of your comments precisely on topic.
ReplyDeleteThe house is already pending - with that type of timing, it appears very likely that it will sell for the asking price or something close. Of course, value can still be debated, but the price a buyer is willing to pay speaks volumes.
ReplyDeleteCan't disagree with that. One data point, but I still completely miscalled it.
ReplyDelete