Address: 610 24th - 90402Details: 4 bed/3 bath 3,116 sq ft house, 8,700 sq ft lot, "recently remodeled"
Description: Beautiful East Coast Traditional on tree lined street in Santa Monica. 4 Bedrooms, 3 Bathrooms all recently remodeled. Hardwood floors throughout. Kitchen is a chefs dream with granite counter-tops and stainless steel appliances. First floor also offers living room, dining room, family room, powder room and one of the bedrooms/an office. Upstairs you'll find two additional bedrooms and a bathroom and the master suite with it's own spa like bathroom. Great back yard. This house is a must see!
Previous Purchase: 12/12/02 - $2,106,000
Listing History: 3/3/10 - $2,695,000
SOLD: 6/15/10 - $2,675,000
Great location and lot size. Interior photos look nice and according to the description the upgrades were completed recently so we need to think about that when figuring out the rollback on this.
Starting from the late 2002 price and using a 12.5% compound growth rate we get an unadjusted current sales price in the early 2005 price range or so.
If you want to be more conservative and use a 10% growth rate, you get later into 2005.
We then have to adjust out the upgrade costs. I think no matter how you cut it, this thing is into 2004 territory which is a better representation of where the market is.
The one thing I don't understand is why someone on this blog left a comment back on March 17th saying that they thought this place was way overpriced. Am I missing something?
$860/square foot for a place that would fit right into Westchester or White Plains, but looks totally out of place here.
ReplyDeleteI agree that this is significantly overpriced. If you type 90402 and $1M to $3M into Redfin right now, you get only one listing in the zip code at a higher price per square foot. Most are closer to $600/sq.ft. All are more architecturally interesting than this.
Well...I'm not going to try and argue too hard but I think some of what might be driving the relatively rich valuation which you refer to can be explained by several factors. First, this is a great location and the lot is a good size. If you had young kids they could literally walk right down the block, cross at the light and bingo they are at Franklin.
ReplyDeleteSecond, look at the photos of the house. You can do that by clicking the embedded link on the "SOLD" portion of the post. The kitchen looks nice. There are a bunch of skylights throughout the house and the dining area looks like it gets great light and leads out to a good sized yard with good outdoor eating area (brick deck).
The bathrooms are all redone. Everything in the house looks like it is pretty much ready to go. You can't just ignore these factors and say this is rich on a $/sq ft basis. Maybe all the other listings on market aren't nearly as updated and they might require work.
So maybe you don't love the look of the exterior or whatever, but it seems like this house has a lot going for it and it is into 2004-adjusted rollback territory. Yes, it could go lower but you aren't buying this house for near or less than $2mm even if the market takes another good leg down.
WarChestSM,
ReplyDeleteI agree with your analysis. Epsilon, I disagree. We can all argue about which direction home values are going but right now the lot value for that location is worth approximately $2m.
Thus, the buyer is paying $2.675m-$2m= $675k for 3116sqft or $216/sqft which is very reasonable for a remodeled home.
Also, Epsilon, you may think the look is bland but right now one of the hottest "styles" is, believe it or not, traditional. The theory being that it is "classic" and thus not as vulnerable to "trends".
WarchestSM, I'm not sure if you saw the home. The reason why the price was so reasonable, in part, was the the floor plan had a major quirk in that the first floor was divided into three "compartmentalized" areas and the flow was not very good.
I agree that the above-average lot size adds a premium beyond the 20% greater acreage, but I don't think you can just dismiss that the price per square foot is high for the zip code right now. It's the 90402, so you're generally talking about very nice places in very good locations.
ReplyDeleteObviously I also think anyone excited because they got a deal that simply reflects current market value is trying to catch a falling knife.
Steve, I disagree that lot value is roughly $2mm. I think it is likely 10% or more below that for just the land. Lot values in this area peaked at somewhere around $2.1-$2.2mm from what I recall.
ReplyDeleteEpsilon, as I stated before, I think the price per square foot is higher in this case because of the recent upgrades. A lot of the 90402 listings in this price range need a fair amount of money spent on them to bring them up to the condition of this house. I did not see it in person but the photos showed a house with a recently redone kitchen and baths. That stuff isn't cheap.
And just because it is in 90402 does not guarantee a flawless location like this. There is no traffic discount and you are close to the school. I never said this was a steal or anything either though. I simply suggested that the market is roughly in late 2004 territory and that this sold at "market" levels.
Steve is definitely right, the downstairs floor plan is awkward - not unlivable but not typical either. That, as well as a very small bedroom upstairs, turned a lot of people off, and brought down the bids for an otherwise very nicely done house.
ReplyDeleteAlso, I know someone in the listing agent's office who said he had to work it really hard to get close to asking, and was only able to get it by bringing the buyer to the table too at an offer way above any other submitted. I won't comment on the ethics of some realtors, but based on an opinion I trust, this was definitely a situation where an inefficient market benefitted the seller - and the buyer didn't do the due diligence on competitive bids before making his offer. But that shouldn't be an uncommon occurrence to anyone here I'm afraid...
WarChestSM, I respectfully disagree.
ReplyDeletePeak lot values were absolutely higher than that...they were $$2.3-2.4m. Current lot values are around $2m. For instance, 622 21st just sold for $2.026m (I saw this one...teardown or perhaps major fixer) and 463 17th sold for $1.92m (more traffic on 17th given through street and also on the East side of the street). In fact, the low point for a 60ft lot this year was 247 20th at $1.86m which was a different case as it was an REO.
I would say that a 60ft lot in a great location like 610 24th is arguably worth more than $2m based on these comps.
We all know that 24th is one of the most desirable streets in NoM as you point out--no traffic discount, nice pine trees lining the street, higher proportion of double lot neighbors on 24th (thus even less traffic and maybe even a little more "prestige" for whatever that's worth), walkable to Franklin (after all it is in Franklin which still gets some premium over Roosevelt), and it's on the Westside of the street (sunny in afternoon).
I would argue that perhaps the 60ft lots are currently $2.0m (with issues/discounts perhaps $1.9m) and this one is even maybe $2.0m+ given it's basically flawless.
Now, none of this is meant to be a bullish argument on the direction of real estate. It's just a statement of the current market.
SaMoDad,
ReplyDeleteI'm not surprised as my feeling is that in the current market any house with a flaw (major or more perceived) is just much harder to sell, even if priced at "market". Flawed homes really need to be sold below "market". Yet it's odd, since homes that do not have these flaws, priced at "market" seem to get a lot of interest...even multiple bids with heavy cash components.
Regardless of whether we think home prices will go up or down, my feeling is that this phenomenon is due to the fact that the marginal buyer today is in much stronger relative position than historically but is being more picky in buying for the "long term" rather than a flip. On the otherhand, available inventory of "good product" is somewhat decreased as wealthier more stable owners do not want to sell into what they see as a cylical downturn and believe if they hold on for the next 5-10 years there will be better opportunities to sell. Thus, more of the sellers are the weaker financial types who are more likely to perhaps have been flippers.
Anyway, this is an interesting market to watch as it is almost two different markets...some properties just cannot be sold anywhere close to market and will have to accept huge discounts yet others fly off the shelves.
How can a buyer "do due diligence" on competing offers?
ReplyDeleteSteve: very much agree with the comment that the inventory of good product is decreased, as stable owners don't want to sell into a cyclical downturn. That's also informs my conviction that we have a long time, and a long way, left to fall.
ReplyDeleteBeyond the macroeconomic data, I'm regularly out looking at housing, although at a level well below this place. My range is $500,000 to $600,000, and at this point, I've expanded my search to the whole west side (currently living mid-Wilshire), with some occasional glance at listings in the South Bay or Burbank/Glendale/Pasadena (when I start to think it would nicer to have land than just a condo/town home).
I'd say 90% of the places I look at were last sold in the 2003-2006 time frame, often younger sellers, and often trying to get out for around their purchase price; maybe a small profit if they bought in 2003. Many are also in less lucrative careers than I am---i.e., they bought too much house, and are tired of keeping up. Generally, I just say thanks, and move on.
The remaining 10%, though, are the interesting places. They're the sales from the late 90s, and even though they're always in the same price range, they're nearly always 1) the nicest places in that range, 2) have more stable buyers with better jobs, and, most interestingly, 3) would give the sellers around 100% profit if they get around their asking price. In 1998 or 1999, you could actually buy a nice town house on the westside for $300k or so. These places are a lot more tempting, but if there's a lot more inventory like that out there (I assume there is, but I don't know), then there's still a lot of room to fall. Ten years ago, $80k could get you into a decent apartment or town home on the west side; today, even though incomes have been stagnant, rents are falling, and unemployment is way up, it's a $150k+ market.
The stable owners think they're holding for an eventual upturn... they don't realize that we're Japan, where housing today is still cheaper than it was in 1990.
Epsilon,
ReplyDeleteI agree that is the state of today's market. You are characterizing inventory and sellers in a way that makes sense to me.
I also agree the Japan framework is a useful one to analyze our current situation--much of it is applicable.
I would however, argue, that the current situation is also different in some ways. Whereas Japan was an isolated situation, what we are currently facing is that many of the developed countries have leveraged balance sheets.
Also, the US is externally financed whereas Japan is largely internally financed. The USD is still, like it or not, the world's best choice for a reserve currency.
What this means is that quantitative easing (e.g. printing money) is easier for the US government.
The current situation is one where a lot of sophisticated investors are increasingly nervous about fiat currency/paper money which is why asset values have reflated dramatically since early 2009. A lot of sophisticated investors do not want to hold too much cash and cash substitutes and have diversified into hard assets, including gold which has appreciated substantially, commodities such as oil, and real estate.
That, in part, explains why high-end real estate has held up better. High-end buyers are not buying based only on income but also based on wealth. Put another way, if you were a stock analyst and only looked at P/E ratios you could entirely miss the boat by not looking at balance sheet as well (if a company were overleveraged then obviously different risk/reward).
Anyway, my only real point is that the value of a dollar is not constant but changes over time, and is, itself, also based on perception. That's why predicting real estate values is very tricky because we are pricing them based on nominal US dollar values.
Steve -- interesting comments. On your comparison to Japan, the fact that Japan was internally financed didn't stop it from engaging in massive, extended bouts of QE and running up huge debt burdens in its own currency.
ReplyDeleteAlso, I would tend to think the internal financing provided Japan a luxury we don't have -- stable, cheap money, which allowed Japan to pursue a ZIRP for 20 years and counting.
While dollar financing currently may be cheap, you have to have serious concerns about stability given that average duration has been shortening and continues to shorten substantially. I don't think we're likely to run into any funding difficulties on our way to 150% debt to GDP, but if we did interest rates would spike and we all know what would happen to real estate.
You also have to consider that Japan was better positioned than us given its ability to limp along by exporting to other countries with far more robust economies during a period of overall good global growth. Other than dollars, what do or can we export? And, even if we found something, to whom would we export?
One thing we have going that Japan didn't is slightly better demographics, but unless we change our immigration policy our aging population is going to present the same drag as Japan's currently does.
Long and short, I'm with Epsilon on this one . . . .
Gus,
ReplyDeleteYour points are good ones. The reason why external financing is better than internal financing in my mind is that the cost of the money printing will be in part borne by outsiders--thus the politics, while always difficult, are somewhat better.
I think it's less the zero interest rate policies but more the direct quantitative easing of monetizing the debt that is what we are all concerned about.
I don't disagree that the funding profile of the US has been shortened more than the Treasure would have liked if they had forseen all of this when the stopped selling the 30 year. Nevertheless, I think if interest rates move up that is exactly when the gig is up and we have to aggressively monetize the debt.
Otherwise, we let our economy and financial institutions implode and the social unrest from that will be much worse than monetizing the debt when some of it is held externally.
That then solves your point about the exports--the reserve currency status of the dollar is both a strength (cheap funding) and a plague (kills our exports).
Your points are not wrong--these are all matters of opinion and I think it is difficult to predict.
We all agree we are in a pickle and we just see the answer in terms of the way out being different. This is the very debate that Obama is having with Merkel.
I feel the natural conclusion to your point of view is that we will go into a Great Depression like era. Japan was an isolated instance, now we have all of the developed economies facing the same issue--which is why for paper currencies it is a race to see who can devalue/monetize first politically. I feel that debasing the currency and hurting the savers versus the creditors is a much more political expedient route.
Anyway, the natural conclusion to all this to me seems to be be diversified between cash and hard assets as we face major problems and the way out is very foggy. Buying real estate you can afford also has the benefit of providing a home for your family while you wait for Armageddon. If deflation is the route then sell your home and buy a nicer one down the road. If inflation is the route then be glad you have a hard asset. I don't think that putting all your eggs in one basket and renting is the wiser choice at all--it is an aggressive bet on deflation--however, I can understand that if buying a home is too big an asset from a diversification standpoint that may be an issue.
ReplyDeleteHere is more on the printing/deflation/inflation issue.
ReplyDeleteWarchestSM, exactly, good link. It explains all the more reason why the government will print money to support asset prices...without fear of financing the debt nor causing run-away inflation. What it does do, however, is distort asset prices relative to the value of a nominal US dollar. That is exactly the concern for some high-end home buyers that are looking at real estate as one way to diversify that erosion of value. In fact in the last two days we had two newsworthy events on this front: the Chinese starting down the road to long term RMB/$ revaluation and that the Saudis have been buying a lot more gold than anticipated.
ReplyDeleteCrash Random - now is exactly when buyers do not have to feel pressured to submit a "timely" bid just because the listing agent says there may be competitors for a house.
ReplyDeleteDespite Steve's comments about there being two markets (which I agree with entirely) and some homes selling quickly, there is no need to jump into a bidding situation without understanding the competitive landscape. As a buyer, you may not be able to know exactly what the other bids are, but you can and should ask questions of the listing agent regarding how many other bids there are, how competitive they are, and what aspects of the offer are important to the sellers.
If you are going into a negotiation without having some understanding of what the seller's motivations are and what you're up against, then you deserve to pay full list if the next highest offer is 10% lower...
A good realtor earns his/her commission with that sort of situational and industry insight. Of course, as I understand it, the buyers in this case gave up that ability when they elected to work directly with the listing agent.
"Despite Steve's comments about there being two markets (which I agree with entirely) and some homes selling quickly, there is no need to jump into a bidding situation without understanding the competitive landscape. As a buyer, you may not be able to know exactly what the other bids are, but you can and should ask questions of the listing agent regarding how many other bids there are, how competitive they are, and what aspects of the offer are important to the sellers."
ReplyDeleteAside from them letting you inside the place, if you take any advice from a realtor, you are a fool who deserves to be parted from his money. There is no way of knowing if there are other bids, let alone "how competitive they are" as you suggest. I have been out looking for my next property for almost a year. I have been lied to countless times about full priced offers, all cash offers, bidding wars, blah blah blah, but that's ok, because it's a realtor talking, so I know it's all lies.
Steve wrote "It explains all the more reason why the government will print money to support asset prices...without fear of financing the debt nor causing run-away inflation. What it does do, however, is distort asset prices relative to the value of a nominal US dollar. That is exactly the concern for some high-end home buyers that are looking at real estate as one way to diversify that erosion of value."
ReplyDeleteBut doesn't that just suggest that the value of houses as measured in nominal dollars will, eventually, when the distortionary effects of the subsidized money stops, drop to reflect their true value? If what we're trying to do is preserve buying power in dollars, and we're not worried about inflation, wouldn't it be best to just hold dollars?
Also, Steve, I think you're spot on that renting (as opposed to buying) is generally a bet on deflation (but I don't agree with the apparent implication that housing as an asset is a good hedge against inflation due to its inverse relationship to interest rates, which would rise in an inflationary environment). But that is only at the macro level, and there are plenty of micro factors which could make the renting bet pay off independent of any actual deflation. For example, the continued implosion of the independent movie industry, the apparent death of the originate-to-sell and wholesale mortgage lines which brought big salaries to many in LA, continued effective unemployment in the 20%'s or even a modification of Prop 13 to fill the gaping budget deficit. And recall that house prices in Japan have dropped dramatically with much more stagnation than deflation.
For that matter, the California economy is significantly worse off than the rest of the nation, and I would expect the rest of the nation to stagnate/stabilize while California, especially Los Angeles, continues to contract. How long do you think the Jim Boehners of the world are going to tolerate programs which, in effect, are propping up housing prices primarily in California and the New York banks on the risk for those loans?
Agreed... and this is usually true even of your own buyers agent. The real estate industry has evolved to make the primary incentive of any and all Realtors simply to complete transactions as quickly as possible. Neither the buyers agent nor sellers agent gets much out of anything other than moving very quickly to the next sale.
ReplyDeletethis house sucks. terrible layout. house seems nice but when you look at it up close, it is in terrible condition. take a look at the original windows from the 1940s. before you comment on a house, you should really visit it. the original buyers paid too much and got lucky on this sale.
ReplyDeletecome on...
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