Thursday, May 22, 2008

There may be more than just ocean waves crashing in Redondo Beach

Most of you are probably too young to remember the old Time Tunnel sci-fi series, about two scientists in Project Tic-Toc who get stuck in a time machine and travel into specific moments in history in which disasters (e.g., the Titanic) are about to unfold, and they try desperately to change the outcome but can't. You could call Dr. Tony Newman Cassandra-1 and Dr. Doug Phillips Cassandra-2.

Perhaps more relevant to you Gen-Xers and beyond is the novella The Sun Dog by Stephen King, in which a teenage boy discovers that although he snaps self-developing Polaroid shots of any subject matter he wants, the pictures always come out the same - a vicious black dog who gradually edges closer and closer toward the photographer with each successive picture taken.

It was bad enough to feel like a complete wacko for many many years watching this bubble blow up to such monstrous proportions and wondering if things would ever change. There is no question about it that housing bears have been Cassandras. The perennial housing bubble optimists have been carefully crafting their PR, snapping lots of rosy pictures, but once the pictures are developed that vicious black dog of a price decline just won't go away and keeps edging alarmingly closer as time goes on.

There is a possibility that Redondo Beach has finally hit that slippery slope of the S-curve. The markdowns are coming so fast and so furiously that I cannot keep up with them. The jig may be up. Today I spotted another round of markdowns at Ruxton Pacific. If you've been reading this blog regularly you know that I stopped by there two weekends ago and picked up literature, then last weekend at 6 PM on Sunday night I got a phone call from a realtor there. I told her honestly that we weren't looking to buy, and were keeping all our options open, including moving to another state and moving out of the country.

I think the Ruxton markdowns were triggered in part by the sale of the final unit at Mansel Villas, which originally went for about $800,000 (same as Ruxton Pacific) and finally sold for $650,000. Ruxton Pacific therefore has no choice but to mark down. The realtor is doing the right thing, and he's got to do it quick.

It's amazing to see what happens when the air is let out of a bubble. A few electrons leap about between synapses in home buyers' brains, and in a matter of seconds potential home buyers can alter their opinions about assuming a pile of mortgage debt the size of Mount Everest. It doesn't matter about the surround-sound or the granite countertops, how much debt am I taking on? And in the blink of an eye it suddenly doesn't matter that a brand new townhome that was originally marketed at $800,000 was reduced down to $720,000, with free 1 year HOA and coverage of closing costs thrown in. It was still too much debt to take on. So the townhomes are marked down further to $650,000. But if the potential mortgage debt is over what people feel comfortable taking on, the asking price might as well be $1 trillion. In the prior downturn, we reached a point where price markdowns became "a way of life" and lots of properties sat on the market for several years. We haven't quite gotten there yet because we haven't reached the "reductions as a way of life" stage yet. Nearly half the unresolved inventory in my database is not marked down.

It must be murder being a builder in an environment like this. Construction projects have long lead times and can't take into account how quickly people can change their minds about the perceived value of their product. Builders assume that what people wanted last year is what people will want next year. It's virtually impossible for a builder to change course in mid-stream as quickly as people can change their minds about what kind of housing they think they want and how much they are willing to load up on debt for it.

All is well!

You are going to hear a lot of hype about improving sales in Redondo Beach over the next few weeks, and that things will be rosy again soon. It is true that sales are bouncing up a bit. For Redondo they may even exceed my guesstimate of 60 properties sold for May. But the way I perceive the truth is that those sales are finally going to mark to market all those price reductions that have been quietly occurring over the fall and winter months, and the median price will fall. We need these sales for prices to fall.

I am going to sign off this post with a sneak preview of ultra-recent May home sales so you can see how prices have come down and how reductions have gone up, percentage-wise. Remember this is sort of a preview of a preview.

Saleprice  Sqft   PctRed    DOM
405000     1033   15.09     437
420000      955    8.70      91
461000      941    5.92     179
465000      949    2.11      62
517000      909   10.09     281
525000     1194    8.70      52
526000     1070    3.49      97
575000     1820   17.85     626
599000      972    9.92     138
620000     1819   17.32     173
625000     1162   26.27     417
650000     2000   18.65     286
678000     1707    7.00     233
683000     2208   14.63     261
725000     1824    6.93      73
735000     1482    0.00      41 
750000     1622   -0.13      65 
820000     2022    1.09      89 
829000     2019    0.00      34 
830000     2500   12.54     304 
850000     2263    9.48     176 
865000     1692    6.99      42 
868000     1826    0.80      82 
875000     2500    2.67      66 
890000     2500    8.15     122 
980000     2230    1.90      89 
1140000    2320    7.24     250 
1285000    1428    6.07     200 

704000    1763    7.12     130 MEDIAN
721107    1677    8.20     177 AVERAGE

And short sales continue to occur. If I loosened up my short sale query and considered, say, a 3% cushion to cover transaction costs, there would be many more entries in the short sale list. The sellers this month for the most part have been pretty lucky, as most of them have been in their properties long enough to get a nice gain out of their sales. Kudos to them for great market timing.

2008-05-05 2006-06-30 -1.0 320 S. Broadway B     2405
2008-05-12 2006-11-15 -8.0 2916 Gibson Place      972
2008-05-12 2005-09-15 -6.0 1617 Wollacott Street 1824


Blogger bearmaster said...

BTW, if you want to watch the episode "Rendevous with Yesterday" about the two Time Tunnel scientists on the Titanic, here it is. Some of you bubble bears may appreciate how they try to warn others on the ship of impending disaster, and they end up treated like criminals. Sounds very familiar!

8:24 AM, May 23, 2008  
Blogger bearmaster said...

By all means, visit Ruxton Pacific if you insist on buying a townhome NOW, bubble be damned.

I will quibble with them on one point - the units that were originally listed last year at $849 or going for somewhere in the $600,000'ss, while those that were originally listed last year in the high $700,000's are the ones likely listed at $599,000 now.

And I still don't like the crime rates in the area. I'm not including the crime of the price you're still paying for these units.

10:58 AM, May 23, 2008  
Blogger bearmaster said...

I just found a phone message left by one of the realtors of Ruxton Pacific to tell me about the *big* markdown for Memorial Day weekend.

I think they REALLY REALLY want to get these units sold.

5:08 PM, May 23, 2008  

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