Address: 654 Hill - 90405Details: 3 bed/2 bath 1,728 sq ft house, 5,066 sq ft lot, 2003 (remodel?)
Description: Fabulous architectural home by Kevin Daly A.I.A in desirable Ocean Park. This 3 bed + 2 bath home features an open, light filled floor plan w/wonderful living space that includes art gallery great room, cooks kitchen + master bedroom w/doors that open to outdoor space. Exposed beam vaulted ceilings and skylights, sustainable bldg. features (bamboo, radiant heat floors, energy saving appliances) and back/front yards. Sophisticated + turnkey living - walking distance to Main St.+ beach.
Previous Purchase: 7/11/03 - $989,000
Listing History: 11/12/09 - $1,395,000
SOLD: 2/8/10 - $1,260,000
This redone house looks pretty neat inside and I am thinking that the 2003 purchase was done after the upgrades. Thus we are looking at an apples to apples comparison in prices.
From the $989k price in 2003 to the price that this just sold at, we've got 3.8% compound annual appreciation. Not too bad. Inflation + a small premium.
Of course, most of us think there will still be some pressure on prices because by using a mid 2003 price as a base, you are ignoring the massive, bubble type appreciation that took place over the few years before 2003.
Another way to look at this is to assume something like 15%/year bubble appreciation from the 2003 price to see what type of nominal rollback this might be. If we do that, we get to something like an early/mid 2005 price. This is basically where things have been selling lately. So I don't think you can argue that this buyer got a great deal...they basically paid the going market level which I still maintain has some downside to come but is at least down materially from peak bubble levels.
You are correct. The 2003 sale price was after the remodel. The inside is VERY nice and the new work is blended well with the old. I seem to remember that there might have been a small separate guest house type of thing in the back but maybe I'm confusing this house with another. It is a very nice property,for a remodel.
ReplyDeleteI would say it would have sold for 1.5-6m at the height of the bubble in 06. This sale price seems to reflect the current going rate that hasn't decreased in almost a year now. I really don't think it will decrease nor will it increase in the foreseeable future.
I agree with Tom, I think we are seeing a bounce across the bottom. No big increase or decrease in the market in the foreseeable future.
ReplyDelete"you are ignoring the massive, bubble type appreciation that took place over the few years before 2003"
Was there really "massive" appreciation before 2003 that was any different than other up years in LA? 2002 was a bad year following 9/11 and things actually took a step back in many areas. In 2000 things were slightly down after the dot-com crash. Before the dot-com crash it was about 8 years of normal LA appreciation; unless you think the current bubble started in '92.
I don't think the real bubble appreciation of double digit returns started until 2003. Before then there were average appreciation with maybe one or two scattered years where some areas saw an above average bump. But these weren't consistent increases in price to call them a bubble starter.'99 and '01 before 9/11 come to mind as being slightly above normal. But 2000 post dot-com and 2002 post 9/11 wiped out most of those '99 and '01 gains.
2003 is where we started seeing double digit returns even in the undesirable parts of town. Before then those kinds of numbers were only seen in the very best parts of town. Not every area is going to correct the same amount and I think we are seeing that in Santa Monica, especially 90402. Just because Riverside rolls back to 2000 prices doesn't mean Santa Monica is going to do the exact same.
When the bubble began, etc., while a fun exercise, is largely irrelevant in determining value today and over the next few years. What matters is current price to rent and income to price. Eventually, we will return to historic norms either through higher incomes and rents, or reduced prices/monthly payments. If you want to compare to a particular year, you need to look at the price v. rent ratios for those years, not the nominal price unless you assume incomes and rents are flat or have followed inflation.
ReplyDeleteBased on rents, prices in Santa Monica are still vulnerable.
Real estate varies widely by market. "In California's San Bernadino and Riverside Counties, it now costs 10% less to own than to rent; in 2006 owners paid more than twice as much as renters."
-money.cnn.com/2010/02/12/real_estate/housing_prices_rents.fortune/index.htm, which discusses the importance of rents.
"Was there really "massive" appreciation before 2003 that was any different than other up years in LA? 2002 was a bad year following 9/11 and things actually took a step back in many areas. In 2000 things were slightly down after the dot-com crash. Before the dot-com crash it was about 8 years of normal LA appreciation; unless you think the current bubble started in '92."
ReplyDeleteThat's not accurate, according to the Journal's own survey, in LA County housing bottomed in 1995, and by 2000 was appreciating at a healthy clip slightly outpacing inflation. From 2000-2002, we saw a magical 50% "pop" in an asset price that is supposed to move very slowly across the whole of LA County. To say nothing of the further 20% to 2003. There was nothing new to support this sudden and gigantic price Bubble other than the fact that Greenspan took rates down to 0% and 2000 is when the financial industry began to securitize mortgages.
In other words, the Bubble started in 2000, and was already in full swing with a gigantic explosion by 2003 for no reason other than a flood of liquidity provided by the Fed and by the Wall Street securitizations.
This was Phase I of the Bubble.
Phase II starts when, on top of all this, the financial industry came up with "creative financing" options--subprime mortgages and option ARMs that were then sold as securities throughout the world, and when they had more buyers for these securities than the mortgage originators could pump up, they lowered the standards further with no-doc and no-down loans and took the Bubble to the next level.
Right now the phoney gains of the post-2004 phase have for the most part been vomited back out. Phase II of the correction will come after the unprecedented government programs end, the programs that are wrecking the deficit all in the name of supporting the unsustainable prices. Most of these supports end beginning in March to September. To say nothing of the higher interest rates coming that will truly "pop" the Bubble that the Fed is trying hard to keep inflated.
Phase II of the correction will take out the phoney 2000-2003 gains that were based on nothing but liquidity and creative accounting.
I'm really getting tired of repeating the facts to the deniers. It's the five stages of shock. From 2002-2007 they were simply in denial ("there is no bubble"), now they've moved from denial to bargaining ("okay there's a bubble but now it's over", "okay there's a bubble but not in Santa Monica").
The fact is that buying a home is an emotional decision. Most people decide they want something, then work backwards and find a rationalization for why it makes sense. If you are trying to sell a home or are in the market for one or are a Realtor, there is every reason to be in denial. It's really futile to argue with these people, they're the same exact people who said there was no Bubble from 2000-2007.
Completely agreed, Arti. The latest logic seems to be, "I just don't think interest rates can stay this low much longer! I better buy now!"
ReplyDeleteI'm not sure why no one makes the next deductive step that a rise in mortgage rates will inevitable bring down prices further. But alas, people aren't even that rational when it comes to stocks. They're nuts when it comes to housing.
The problem, Epsilon, is that there's a hundred of these idiots for every rational actor. You have to forget about reasoning with them, and instead try to see where this mindless herd will go next so you can make your moves through life without getting trampled among them.
ReplyDeleteRight now they're very agitated and confused, they demand that government give them a new Bubble to collectively invest in.
What's shocking, though, is that they are otherwise rational people. At every stage of the bubble, I've known highly educated friends and co-workers who just couldn't wait to buy. Those who bought in 2006 or 2007 are certain the market will bounce back soon. Those buying now are certain these are the best prices they'll ever see, and won't last long. You mention how much less you're paying renting, and you get a look like you're a poor lost soul for not understanding that it's worth paying twice as much for the supposed benefits of "ownership."
ReplyDeleteI guess I'm the foolish one to continue following this so closely, when all the signs point to it being several more years before buying makes sense again. I'm also caught up in the ownership bug; I owned at the beginning of the decade, and never thought it might be a 10-15 year wait before I owned again...
I hear you Epsilon, but you can take comfort that it's not the over-paying per se that irritates us. It's the denial, or the idiotic self-rationalizations you hear people make. It's perfectly okay to make a financially deficient choice, as long as you're not kidding yourself and others that it's actually a great financial move. Just be honest about what it is.
ReplyDeleteLike you, I have the bug again, and with prices down 20% across Santa Monica I don't feel completely stupid buying now. Sure, I can easily wait another year (I love the place I'm renting), and save another 10% off the purchase price which is a huge amount of money in the over $1 million market. But then again I might not want to wait, for any number of personal reasons.
But the difference is that if I buy now, I'm not kidding myself and telling myself it's a good deal or that it's the right financial time to buy. No, it's simply an emotional decision I have the right to make, and anyone with a family or needs has the right to make. As long as they don't kid themselves and spread idiotic theories they hear from their barely educated Realtors about how this is a great time to buy. That's where the frustration with the idiocy of the buyers gets me.
The thing that sucks is that you end up paying property taxes at your buy in price. I can't understand all the people who bought $2M houses and are coughing up $20K/yr in ongoing costs on top of $10 - 12K/mo mortgages. It must be burying them.
ReplyDeleteI am loathe to step up from my 2000 purchase to the next level primarily because the monthly nut looks so bad - and I am a good earner. I am also fearful that the mortgage interest tax credit will be short lived and then it will really kill the high end of housing.
"From 2000-2002, we saw a magical 50% "pop" in an asset price that is supposed to move very slowly across the whole of LA County."
ReplyDeletePlease cite to something that shows a 50% increase between 2000 and 2002?