Tuesday, October 31, 2006

Another one bites the dust? 7043 Liav Avenue

This townhouse was sold on May 17, 2005 as new construction for $845,000. Today on the way home from work I noticed the "For Sale By Owner" yardarm and being the bubble-crazed blogger that I am, I immediately drove around the corner to White Circle to park the car and walked back up this road with my camera to take the picture. Asking price is now $899,000. Is the first buyer in trouble after 17 months?

13 Comments:

Blogger mike said...

hmmm, let's see. $899k minus 6% equals $845k, the original purchase price. they're trying to get out unscathed, but i really doubt they'll pull it off.

6:48 AM, November 01, 2006  
Blogger Chris said...

I was chatting with a realtor friend (she's been at it in the SB for 20+ years) last night who told me that she believes the tide has turned and what few buyers are out there are very nervous. She also mentioned (after I inquired) that Shorewood (and others) are well known for "playing" with sales reporting numbers and the entire business has gotten more and more sleazy. Her advice to me was "wait another 12-18 months" before buying, "things could get very ugly". Lastly, she mentioned that the lendors are trying very hard, and working with their clients, to keep sales prices as stable as possible. One thing they are already doing is "adjusting" loans to keep properties in the our area out of "trouble".

10:04 AM, November 01, 2006  
Blogger bearmaster said...

Wow, thanks for posting that, and thank your friend for the inside info! You certainly wouldn't get a sense that anything is wrong when you page through the real estate section of the Manhattan Beach Reporter and see all those smiling realtors other than their occasional "New Price!" announcements or the general increase in open house listings.

So things have deteriorated to the point where lenders are poking their fingers into the holes in the dikes to keep the water from flooding in.

Wonder how long they will be able to hold back the flood waters. Will they run out of fingers by Christmas? Around New Year's?

And if that's the case, 12-18 months to wait before buying almost sounds too optimistic! There is universe of overbuilt, overpriced, bloated stuff here that people will not want. (Well, I can't speak for all potential homebuyers. But between construction bloat and land, I'll take land.)

The price a property was originally bought at is critical, because that's the line in the sand homesellers typically draw as "absolutely refusing to accept offers below". It's a mental "anchor." And as Mike pointed out, the latest property I blogged as potentially in trouble is trying to get out breakeven (or he may be setting up a cushion for rapid markdown), but that homeseller may not succeed in getting out unscathed. Between the location of that property and the locations of 3 other comparable properties I've analyzed in recent days, that one is in the worst location, near a hugely trafficked intersection.

And what's really insane is that builders are forging ahead with their plans to build 625 housing units at El Segundo and Aviation, the big piles of dirt are there, a sign is up - bleech! More new inventory pouring on to the market when it is already going down - yep, the South Bay will be - "interesting" over the next year or two. The housing market will be one giant regional garage sale.

11:13 AM, November 01, 2006  
Blogger Rob Dawg said...

Bearmaster,
The builders -have- to forge on. The rule is once the permit is pulled you are upside down until you close on the whites. [For those outside; "on the pinks" are tentative sales; deposits and commitments, people who say they are going to buy. The whites are actual closed sales.] Yes, too much, too crappy and not the right product. I cannot see any "lifestyle" at Aviation and El Segundo. That's a place to worry about your car for a week while bringing the kids to visit grandma in St. Petersburg.

12:36 PM, November 01, 2006  
Blogger wannabuy said...

I'm begining to agree 12 to 18 months might be optimistic... but maybe not. It depends on the rate of the drop... I'll stick with Fall 2008 as the earliest to even consider buying. But I'm all for a realtor honest enough to say "wait." I don't expect them to get the time right, just the trend. ;)

"Wonder how long they will be able to hold back the flood waters. Will they run out of fingers by Christmas? Around New Year's? "

The ability to delay the inevetable amazes me. I make no predictions until 2Q 2007. Then? Get out of the way, the dam has let go.

" And what's really insane is that builders are forging ahead with their plans to build 625 housing units at El Segundo and Aviation,

Go go go! :) What's the ETA?

I do hope to tour Fusion this weekend. Most of the plans would never interest me, but its a possible backup idea in a few years.

I know a ton of people who are still optimistic and betting their money on future price increases. I might even get to have dinner with the developer of a *small* (8 unit) condo/townhouse development on Aviation. I'll be all ears (and will shut up about the bubble, for one night).

Neil

4:50 PM, November 01, 2006  
Blogger bearmaster said...

Robert, that totally sucks for the builder. It's almost as if he is forced to commit financial suicide sooner by pouring money into a disaster.

Neil,

Ooohhh, are you gonna spy for us?

That is the problem - in the press, and on public faces, there is lots of optimism. But behind closed doors buyers are nervous. Sounds like a Big Bad Bear coming.

By the way folks, according to a Reuters story, cash-out mortgage refis reached a 16 year high in Q3. What are people thinking? They wanna take the money and run?

I am starting to think the Big Bad Bear's expectation of a 90% decline in property values will happen. It happened during the 1930's and early 1940's, only it was spread out over many years. But they didn't have the maniacal hyperleverage that exists now so once it blows...

5:42 PM, November 01, 2006  
Blogger bearmaster said...

By the way Neil, I forgot to tell you, Nouriel Roubini is looking for a recession early next year. He has a good track record in his calculations of GDP. And he is far more apocalyptic than I am - he almost makes me sound like a bull frolicking in the daisies:

http://www.rgemonitor.com/blog/roubini

If he is right on this, I'm sure late winter and early spring will be interesting for our housing market!

5:58 PM, November 01, 2006  
Blogger wannabuy said...

By the way Neil, I forgot to tell you, Nouriel Roubini is looking for a recession early next year.

He is a bit of a bear. I believe we are going into recession. Classic recessions are predicted by inventory buildups. Hey, if you have inventory, why pay people to build/import/store more? I keep hearing about inventory buildup in autos, lumber, housing supplies (e.g., granite), and most other stuff.

Diving into the 3Q GDP, I see an uptick on airplane orders. How the &*%! was that lumped in with consumer spending?!? Oh yes... I'll go out and buy a blue learjet honey... We don't want to clash with the Gulfstream 550. Ok, aerospace manufacturing is doing pretty well (my field, so I'll shut up now...). But what was that doing lumped into consumer spending?!?

If I get inside information, I'll report. But do note this is a very small developer. I plan to bait conversation minimally (get as unbaised a viewpoint as possible). But we'll see... He's the golf buddy of a friend of the family (yea... a stretched connection), so lets see if we even meet.

I'm not sure about a 90% decline. I'm betting on a recession. A decline to a more reasonable income multiple is the most likely. Were at 11.2X now. I do not see any reason why we wouldn't revist 5X again. And... wages will drop. I know too many who made way too much off of real estate. Good for them! (If they saved any of it.)

To think, traditionally the housing market shuts down Thanksgiving through new years... Hmmmm...

Neil

6:26 PM, November 01, 2006  
Blogger bearmaster said...

I do not see any reason why we wouldn't revist 5X again.

I must be an old bat. I remember when 2-3X was considered reasonable and prudent.

6:54 PM, November 01, 2006  
Blogger wannabuy said...

I must be an old bat. I remember when 2-3X was considered reasonable and prudent.

I could only wish! 11.2X is crazy. Claiming property will drop in half is already getting me banned from dinner parties. Now, I won't buy until fundamentals start pointing to buying... but eventually I will.

Maybe its because I know enough people sitting on the sidelines who will have no issue buying at 5X. Thre reality is, LA has always had a renter class for decades that just likes to hang out. Some are actors, many are students, and some are working their way up (hopefully) in lower paying industries.

Let's put it this way, if it ever became 2 to 3X, the midwest would empty and fill up the coast. It is nice here. But nice doesn't justify 11.2X median wage prices. That only happens in resort markets. Have you seen what prices in resort markets do in a recession? ;)

Neil

9:30 AM, November 02, 2006  
Blogger Rob Dawg said...

We ain't -ever- gonna see 3x in SoCal. First because there has always been and always will be a regional location, location, location premium. Second people do math that transcends 2x/3x type rough measires. By that I mean they look at things like repairs, paint every 10 years for $2000 versus Bos-Wash every 4 years for $4000. They look at 1.2% taxes capped at 2% increases per year versus places with in excess of 3% and no caps. Heating and cooling? Puuuleeze, I have a single wall heater for 2600 sf and no a/c. $200/mo here, $400/mo there and the "premium" is just an acknowledgement of lower total cost of ownership factors. Third, demographics are destiny. Bosh-Wash is aging and stable/declining, SoCal is young and growing.

So yes, we can expect 5x-6x ratios again and make no mistake that's a freakin' lot of decline. The fact lost in all this is that no one gets hurt on the way up and there's almost none of us old bats left that remember declines.

10:37 AM, November 02, 2006  
Blogger bearmaster said...

Robert,

Never say never. You don't have a crystal ball.

Have you read Robert Campbell's book? He is a builder who had to live off his savings for many years and says that old adage about "location,location" flies out the window in the face of a severe enough downturn.

When I was growing up, 2-3X annual salary was the rule of thumb - though I didn't live along the coast as I do now, I lived about 50 miles inland.

Higher paid workers have been leaving and so have some of their companies. Existing companies, even with "younger, hot" workers have having a hell of a time recruiting highly skilled workers from out of state.

This has all been blogged, with links to articles. Check census.gov for news releases about exodus from California. Look at their state to state migration flows report, table A1. And this is just data up to 2000. What has the housing bubble done further to erode the population?

I don't have a crystal ball either but if I had to make a wildass guess about what will happen, I could envision middle class flight and an influx of lower wage arrivals to replace them, living in a lot of this cheap high-density housing that are being sold as condos now but could one day end up as the new slums...

11:16 AM, November 02, 2006  
Blogger Rob Dawg said...

Okay. I am deserving of the sin of absolutism. In truth I was merely typing shorthand not really pontificating as if I were certain.

Your 50 mile inland is an interesting observation. Mobility is the criteria to watch. When "we" were kids, alright when I was a teen and you were a baby, 50 miles was not a commute distance. It was another metropolitain statistical area (MSA). Nashua, Boston, Worcester, Providence, Hartford, Springfield for instances. 'Bout 50 miles apart. Hey, they had some really cool advantages as well. Shipping, finance, manufacturing and education, fishing, insurance and manufacturing respectively.

I understand and agree that "inland" will really crash, it is just that inland today is Moreno Valley, Ontario, Riverside, Victorville, Palmcaster and Bakersfield.

1:41 PM, November 02, 2006  

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