Details: 5 bed/4.5 bath 2,873 sq ft house, 8,700 sq ft lot, newer central heating, roof, and pool
Description: Fabulous opportunity for a 4 bedroom {plus maids/office suite (w/bath) & separate entrance} home in the coveted Franklin School district. Great flow to this inside and out. Living room w/ soaring ceilings & fireplace and large loft w/ built-in bookcase. Good-sized dining room. Large master w/ large, west-facing deck. Huge master w/ fireplace. Master bath w/ shower, tub, double-sink & huge skylite. Sunny kitchen opens to breakfast nook & family room with fireplace and soaring ceilings. Family room, in turn opens to large, west-facing back yard with a salt-water pool (Pebble-Tec® bottom) and spa installed August 2006. New roof May 2007. The central-heating unit, which is air-conditioning-ready, was completed in March 2010. Detached, two-car garage. Alarm & fire system (ADT), motion detectors, panic buttons & medic button.
Previous Purchase: 4/15/93 - $782,000
Listing History: 4/29/10 - $1,875,000
Reduced down to $1,749,000
SOLD: 9/8/10 - $1,650,000
The meaning behind the title of this post comes from several posts that I did back in 2008 on another house on the west side of 26th street. 476 26th (last featured here) was close to a tear down/lot value property which sold on 5/29/08 for $1,575,000.
What caught my attention is the fact that after about 2.3 years, we have a good example of the value which has been created by the housing bust. Instead of paying about $1.6mm for just a crummy shack, you can now obtain a large house. The location here is very similar as both houses are north of Montana on the same side of 26th street.
Another thing I looked at was the previous purchase on this house from back in 1993. Using that price and the recent sale price, we observe a roughly 4.5% compound rate of growth over about 17 years AND this is ignoring all the upgrades (pool and spa, etc).
Overall, I don't know what type of rollback this would represent, and we all have to be very aware of the major 26th street discount in play on this house, however I think this wasn't a bad buy and I don't see how this house is going to go down by all that much from here.
For what it's worth, Zillow considers this to be a 2003 rollback. Excellent!
ReplyDeleteFor two years since the Bubble started deflating it was the low-end that adjusted. Now, it's the turn of the high-end. You can't go up 150% in eight years and not expect to go down at least 30-40% after that. We've got another 20% to go in Santa Monica.
ReplyDeleteI think this is an appropriate way to look at properties that don't have recent sales (looking at the compound interest). One problem, though, is with older sales there is less certainty about the terms (was it a true sale, how much has the house changed, what were interest rates at the time, etc.). So these are better viewed as a large number together to reduce the effect of any non-standard circumstances; but then again, there are only so many data points at once.
ReplyDeleteWith interest rates being approximately half of what they were in 1993, it is interesting to try to back out the interest rate tailwind we have had over the past 17 years.
ReplyDeleteAssuming an 8.5% mortgage in 1993, the payment (w/ 20% down on $782,000) would have been about $4800 a month or about $5500 w/ property tax.
Adjusted for (official) inflation, that translates to about $7200 and $8250 in today's dollars.
With 20% down and a 4.5% interest rate, the mortgage on the $1.65 million 2010 sale price would be about $6,700, or about $8,200 with property tax.
To me, the parity of real monthly payments means that there was no real (i.e., in excess of inflation) gain in the value of the house when the benefit of a falling interest rate is removed from the equation. Adding in the cost of the renovations over the years, and the house had a negative real return ex interest benefit.
There are at least a couple interesting conclusions -- The first is that even when the purchase is well timed (as it was here), a house is not a great investment in terms of gross percentage gains (obviously the overall numbers would have looked better had the sale taken place 2 years ago; and considering that the investment was leveraged, the cash-on-cash return was probably quite respectable). The second is that 1993 was a historically cheap year in which to buy a house (probably within maybe 10% of the bottom reached in 1995 or 1996), so the $1.65 million purchase may end up being a good value on a historic valuation perspective.
What this doesn't take into account though is the relative value of the downpayment needed to get to 20% of value. The real downpayment needed for the 1993 purchase is about 25% lower than that needed for the 2010 purchase. I am not set yet on how I think about this, but my preliminary thought is that inflation-adjusted mortgage payments should be relatively lower now than at times with higher interest rates (to reflect the lower yield on assets in low interest rate environments).
Any thoughts on this?
I am the buyer of this house, and have been reading this blog for a few years. We had been looking for a 4+ bedroom house for three years in the Santa Monica/BW/PP area before we bought this one. It took until this year for higher-end houses to finally capitulate and have serious price reductions. I have always considered the idea of a large 26th street discount interesting. By my estimates, the same house 1 block west would cost $1 million more. There is some street noise from the house, but not much. The parking situation seems quite good as well. I know that neighborhood incredibly well, and I just don't think the street is that bad. Anyway, we feel like we got a good deal, and I'm happy you folks seem to agree.
ReplyDelete