Amused by Rick

The MBC blog ran a fantastic entry about the difference between the asking and selling price of homes in the area.  Executive summary: 10-15%.

If you’ve read almost any real estate article lately you’ve probably been beaten to death with news about declining median home prices in Los Angeles, but that number is so impersonal because it includes a wide demographic of property values and neighborhoods — hardly applicable to any specific person or situation apart from understanding that, as a whole, prices are going down.

Manhattan Beach is an affluent, high-priced area with good schools thereby extremely compatible with South Pasadena, La Canada and San Marino.  A 10-15% price spread is a meaningful metric, I am going to work on determining the actual spread with my propertyshark account.  More to come.

Quick update, of the 4 sample properties I posted in the Lodi Dodi article at the beginning of the year, none of them have sold (one went off-market) despite all being in highly desirable areas: San Marino, Pinecrest area of La Crescenta, Madison Heights in Pasadena and South Pasadena.

In January South Pas saw a lousy total of 3 transactions, one of them a foreclosure going back to the bank.  La Canada saw only 10 sales in the same time period.  Hard to tell if consumers are waiting on the sidelines for a sign to buy or of the buyers themselves have dried up.  Only time will tell.

When propertyshark has February numbers I’ll post them too.

“Bobo” writes,

Why would the person who owns the 1.785mm home going to sell if the bottom falls? He or she will just hold on to it till the market recovers. Perhaps that person plans to live there for maybe 10-20 years and not 3 years and then sell? By then that home will probably be worth more.

Also, the person who purchase this house doesn’t have to make a killing elsewhere. That person could have sold their previous property (or properties) at the same price or slightly less.

I doubt home owners want to see their property value go down. The ones who wish the bottom to fall are the ones who don’t own a home.

I agree with most of what’s written here, the long view argument is hard to argue with on almost any traditional investment. The sad part is how far your dollar in real estate goes in this market, a “one million dollar house” used to be sacred but now $1.785mm gets you a 99 year old house on a busy street in an upper-middle-class neighborhood.

Just for perspective, at that price you need either a stellar income or a massive down payment. Some numbers (incl. property tax):

• $500k down, $9k/mo
• $1mm down, $6300/mo
• $1.5mm down, $3350/mo
• At the traditional 20% down: $357k and $10,200/mo

As you need roughly 3x your mortgage payment to qualify, you would need to make roughly $367k/yr to be capable of supporting that mortgage. Granted, there are lots of people in LA who can swing that, but not that many. It’s worth noting that a $100k writeoff will not do much good to a $367k income, you will still be in a 43% tax bracket … but of course, I can’t fully speculate on how rich people maneuver these types of things.

I don’t wish “the bottom to fall,” rather I would like to see prices adjust to relative incomes in the area. Peter Viles put it in perspective pretty well in his recent blog posts about a fixer in Lawndale and a stater home in a rough neighborhood — both at prices I would have had a hard time coming to grips with when I bought my first house.

My Realtor called today to mention that banks are no longer doing 5% down deals with jumbo loans, and that 15% is the new starting figure. If true that will make capital extremely hard to access without existing cash reserves and she further speculated that a number of homes would fall out of escrow in these price categories. So let’s sit back and watch.

Bobo, thanks for the comments.

$100+ left on a Macy*s gift card, 3 days after Christmas.

Wandering the shoe department, spot a sweet pair.  Ecko Unltd, not in my size.

Find them at the Pasadena store,  the box has mixed sizes in it (9.5 & 10). Damn.

Find them at the Arcadia store, bring them home.  Finally!

Wife doesn’t like them. Return.

Vans store at Santa Anita, wife doesn’t like all 3 pairs I try on.  Getting disappointed.

I cannot bring myself to buy another pair of uncomfortable low-top chucks at Nordstrom.  Salesman is annoyed.

Today.  Vans store.  Pasadena.

Victory.

A house goes up for 1.785mm on Monterey in South Pas.  So… aha!  Let’s watch this one rot!  3 days later, it’s under contract.  I don’t get it.

I was wrong, by the way, in the South Pas/La Canada/San Marino/Madison Heights areas I am not seeing the kind of inventory numbers I thought we would be seeing post-Superbowl.  As a matter of fact, there is hardly any inventory.   It’s looking like affluent owners are better capable of keeping up with their mortgage payments than those in starter neighborhoods.  Just look at the listings.

A friend of mine just bought a 1mm+ apartment building and he mentioned that the agent revealed that well over 80% of their transactions in the past 6 months have been exchanges.  This represents recycled money in the r/e market, as opposed to new money, and that will eventually dry up too.  In other words, if the bottom falls out then there will be noone to buy your 1.785mm home, so I’m guessing whoever bought that house sold another one for a killing elsewhere.

I’ll pull the property report and post here when (if?) the transaction closes.   Until then, wtf!!