Wait, how can this be? Dr. housing bubble said prices were falling!

Address: 369 22nd - 90402

Details: 5 bed/4.5 bath 3,800 sq ft house on a 7,550 sq ft lot, remodeled in 2007

Description: Reimangined Country English. Original details are artfully combined w/ a modern day flr plan & finishes to create a light, airy home. Gourmet kitchen w/ Carrera marble counters, opens to a large family room w/ French doors leading to the good sized landscaped grassy yard & entertaining patio. 5 bedrooms and 4.5 baths w/ high ceilings & hardwood flrs throughout. Bonus room above the garage. Luxurious master w/ dual custom finished closets & spa bath complete with steam and rain shower. Step back in time with all today's conveniences.

Previous Purchase: 7/25/08 - $3,325,000

Listing History: 5/31/12 - $3,399,000

SOLD: 7/27/12 - $3,350,000

This remodel was done in 2007 so this is a good apples to apples comparison. Here you can see that this house just sold for MORE than it did in July 2008. Of course prices had already started declining by then but they continued to decline until early or maybe even mid 2009. So this sale of this house at this level represents an increase from the bottom (but is still down a bit from peak pricing). My point is that prices in SM are up a bit from the bottom and have generally been chopping around a bit.

But oh my, if you were reading some other blogs you might not know this! Instead you would be exposed to garbage like this:

This is a cherry picked selection of "notable quality communities" with supposed large annual declines. I already laid out my arguments as to why looking at this kind of data in isolation is worthless in the comments section of my last post. This is just one month with small samples, etc. This is real data from DataQuick (the LA times published June data) but it shouldn't be used the way that some bears are trying to.

Why? Well check out the Santa Monica data. Specifically looking at 90402, we are supposed to be observing a 25.3% annual decline in property values there. Funny how this house above just sold for more than its mid 2008 level. There is no way it is down by much at all over the past year. It's probably up.

Just how insane is it to try and use this kind of data to make your case? Go take a look for yourself at the May "city data" at DataQuick. Look at Santa Monica. What's that? With a much more statistically significant 68 observations, you have an annual increase of 43%! (yes this includes condos whereas the other reading is SFR's only but I don't think anyone is making the argument that the condo and SFR markets are diverging much these days). So should I start doing posts saying "SM real estate up 43% year over year, bull market raging"?! Of course not.

Ultimately my point is that you need much longer time frames. Looking at just one month on a year over year basis is really dangerous. All you 90402 lovers can lap this post up as I broke my own rule of "no 90402 posts" just to prove how silly the bears are (and hey, it is interesting to start to see gains on real apples to apples examples).

Big Bears, Little Credibility (and why knowing what you are talking about actually matters)

Sometimes I like to check out what the other side is saying. In this case I came across a recent post on Dr. Housing Bubble which featured a property in Culver City. "Hey, Culver City, I know that area!", I thought to myself...So what do we have here?

The bearish example du jour is a current short sale listing at 4072 Globe Ave. Huh? Globe Ave? I don't know that one. OK So I check into it. In the above photo I marked the location with a black arrow. Now check out a closer look below. No wonder I don't know this street...

So here you can see that not only is the house in question literally on top of the 405 freeway, but it is right next to an empty lot (which is/will be used for who knows what).

Previous Purchase: 8/24/05 - $634,000

Short Sale Listing: 12/27/11 - $449,999
Reduced down to - $359,999


This asking price is now approaching the 50% off mark from the near peak price. And at 189 days on market, the price is either too high, the bank doesn't want to make a deal, or the occupants are uncooperative. Impossible to know as short sales can have a lot going on behind the scenes.

But my point here is this: I live in Culver City and I have been monitoring this market closely for over a year. I've been to countless open houses, I've submitted bids and eventually bought a property. I'm going to go out on a pretty short limb and say that most readers (and most people in general) won't ever even consider living on top of one of the busiest parts of one of the busiest freeways in the country. We have also seen across the board and even in the nicest areas, properties in really challenged locations bubbled up the most and have subsequently fallen the most (as they should). So is this lingering short sale at over 40% off a bearish sign? Should we look at this as an indication of market weakness? Please!

I think any bears trying to use examples like this are totally delusional. They are either too lazy to look up the location of a property, or they know exactly where the property is and it is the only way they can find big rollbacks these days. Look, I can go dig through some Virginia Park condos, houses at the end of the airport runway, condos on Overland, etc. I can show you 20,30,40%+ declines. But you won't care (and you shouldn't). So using these examples of supposed overall market health is a joke. You couldn't pay me to live in this location as I would be extremely worried about my health and you can't put a price on that.

Oh and then there is the age old "the median income of the area is $xx,xxx so it proves houses are not affordable. Again, please! Remember when people said this about Santa Monica? I've seen median income numbers of $70-$90k depending on source and year for Santa Monica. So how can home prices stay up at the $1mm mark? Yeah, how did that argument work out? Same thing here in CC. The people buying the quality $750k+ properties are making multiples of the $65k or so income number sited on the bearish blog.

When I first started this blog my number one goal was generally to go after real estate agents as I felt they were spewing the most horseshit. I still don't particularly care for them, but now I'm thinking the bearish blogs and the jokers on the internet who don't know what they are talking about may be about as toxic as a bullish agent back in 2006. If it bleeds, it leads...but out in the real world the market has stabilized and I will be here to shout it from the rooftops if I have to.

Oh and one of the best things is that if you read some of the comments from the Dr. Housing Bubble blog, even his own delusional bearish crowd starts calling him out for using an example with such a craptastic location. Awesome.

Island Tunes - It Is What It Is

Inventory is staying down, rates are hitting new lows, prices are inching up. It is what it is. If you want more details, check out these great graphs from Rich down in San Diego. All bullish.

Watch Out - Better Headlines Are Coming *Update 1*

Back in April I did a post about how headlines were starting to get better for housing and that even better headlines would be coming.

Well, they are starting to heat up. Today we got the home builder confidence numbers and the index was up sharply, posting the largest monthly gain in nearly a decade and it brought the index to its highest level since March 2007. The builders have basically been through a depression, but now they are quickly starting to show real enthusiasm as there are almost no completed new construction houses left in their inventory, sales are slowly rising, and land prices are picking up.

Today also brought a DataQuick release which showed southern California home sales continuing to rise, along with a rise in median price. The median price has increased month over month for 5 straight months and year over year for the past 3 consecutive months. You need to be careful when using median price, but the overall picture remains one of stability.

Then there are all the reports and articles about inventory being much lower, the percentage of distressed sales slowly dropping, interest rates hitting all time lows, etc, etc. I think the low inventory story is huge, as clearly there are many people who now want to wait to sell. Why sell now when the market is finally showing real signs of life? Inventory is so low that there isn't even much to cover for the blog! And finally, you know the market bottomed because I bought a house early this year :)

Housing is now somewhat "boring" and that's a good thing. Ultimately it is just shelter. With rents still rising and ownership costs generally on par with renting costs, I suspect there will be more good headlines ahead.

Cry Me a River, Bears

Address: 2414 30th - 90405

Details: 4 bed/3 bath 2,234 sq ft house on a 6,019 sq ft lot, remodeled

Description: Beautifully remodeled Cape Cod achieves perfect blend of Americana charm & contemporary style. Terrific curb appeal enhanced by picket fence & rose bushes. 4bed/3bath offers bright airy open floor plan ideal for entertaining & family life. Inviting living rm w/ fireplace & bay window. Gourmet kitchen w/ Carrera marble, top-of- line appliances & center island. Private Mstr Ste w/ vaulted ceiling, terrace & his/her walk-in closets. Lavish bath retreat w/ soaking tub, frameless shower, double sinks. Central AC/heat, recessed lighting, CAT5, hand-hewn hrdwd flrs, period fixtures & warm color palette. Serene yard w/ lush landscaping, new grass, fruit trees, fountain, vegetable garden, pergolas & spa. Finished garage w permits, including AC/heat, internet/cable connections & French doors, makes excellent studio/workspace/home theatre. Plus extra bonus rm/office. Close to schools, restaurants, cafes, parks. Overflowing with emotional appeal and ready for you to come on in and say “I'm home!” 


Previous Purchase: 8/19/03 - $1,250,000


Listing History: 7/6/12 - $1,550,000


These sellers are smart to have waited for 2401 31st to close. All the buyers that missed that one can now take a look at this one. And they are strategically asking almost exactly the same $/sq ft. I haven't seen either in person so I can't say which one is nicer but I would imagine this listing will generate a fair amount of interest. Once again, if they get the current asking price I don't think this is down too much from the peak. Cry me a river bears, no scooping up cheap bargains for you.


EDIT -- Here is the old listing from 2003. This looks apples to apples.

Act Fast or You Lose

Address: 2401 31st - 90405

Details: 3 bed/2.75 bath 2,116 sq ft house on a 6,000 sq ft lot, remodeled

Description: Designer's home completely remodeled in 2009. No expense spared and great attention to detail. Picture-perfect Traditional with good floor plan and tremendous light. Formal living and dining rooms, plus den/office/4th bedroom off entry. Three spacious bedrooms, 2.75 beautifully appointed baths. Large center-island kitchen and family room make up the heart of this charming home. Features include reclaimed solid wood floors, designer fixtures & materials throughout, LEED energy conscious appliances and design, custom window coverings, large wine frig and more. Ideal for indoor/outdoor living and entertaining. Just one block to neighborhood shops and restaurants.


Previous Purchase: 7/11/02 - $526,000

Listing History: 4/12/12 - $1,299,000

SOLD: 7/2/12 - $1,458,000

This house was nicely remodeled so it isn't an apples to apples comp with the 2002 price at all. But even still, remember how the bears were talking about scooping up 90405 houses for $500k. Yeah, cute. But not going to happen. The market remains hot this year and I don't see any evidence of it cooling off.

Culver City Upgrades

 Here are some photos of some of the nicer houses in my neighborhood. When I walk around I see a lot of older housing stock that hasn't turned over in some time. But I also see examples like these. Newer money coming in and doing remodels/tear downs. We are nowhere near the level of construction activity seen in SM, but I think I will see more activity over the years going forward.

Even Stale Inventory Finally Clearing

2507 California has been on and off the market since late 2008. I last featured it in late 2010.

They had it priced too high before but then did some upgrades.

Current Listing: 3/21/12 - $1,599,000
Reduced down to - $1,528,000


SOLD: 7/2/12 - $1,480,000

These sellers had proved stubborn in the past but it seems a combination of a better market and a little bit more flexibility on their pricing was enough to get this sold.

Low Interest Rates

To the left is a chart of 5/1 ARM rates. Currently, 5/1 ARMS are at roughly 2.75%. To review, the rate you see here is the fixed rate for the first 5 years (or 7 years if you were looking at a 7/1 ARM for example). After the 5 year fixed period you then go to a floating rate which gets updated every 1 year (hence the "1" from 5/1). The floating rate is usually determined by using some 1 year index (LIBOR, Treasuries, etc) and adding a spread (~200 bps). The shorter the initial period (a 3/1 ARM for example), the lower rate you can get for that period. Some banks (First Republic comes to mind) will do wild things like just go straight floating off of 1 month rates. So you can get extremely low rates that way but you of course have no protection from rates going up in your face. One thing to remember about all these types of ARMs is that I am looking at conventional amortization schedules here. So we aren't talking interest only or option ARMs.

On the other side of things you have 30 year fixed and 15 year fixed loans. 30 year fixed money is now south of 4% and 15 year fixed rates are near 3%. I like the idea of paying a loan off at a faster trajectory than the 30 year route but you only save like 75 bps by going the 15 year route and you are forced to pay a chunky amount of principal every month. With a 30 year trajectory (which is also the trajectory that the ARMs above use), you always have the OPTION to pay more principal but you aren't forced to (which I see as a benefit in case you have other unplanned expenses or you suffer some earnings volatility).

I guess what inspired this post was another post on a negative housing blog which was talking about how so few people are using ARMs now. I also remember reading about how the author of Piggington had used a 30 year fixed because he felt it very likely that we will have lots of inflation and high rates around the corner. Well, maybe I'm crazy but I ended up financing with a 5/1 ARM. I put more than 20% down and I financed at a pretty modest multiple of household income so I think I will be able to pay down much of the loan at the end of the 5 year period if rates are a lot higher then (and assuming I don't refinance before then if rates start to really rise). If I had stretched more for my purchase then I probably would have gone with a 30 year fixed as I wouldn't have wanted to take any chances on rate moves. I see using a 5/1 ARM at record low interest rates as a bit of a gamble, but one that I can afford to take.

...but low rates will probably be here for a while. Here's an excerpt the Fed's last statement on rates:

the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.