905 Singing Wood Dr.

*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%

I couldn’t find a previous sales price for this house, but it showed a transaction on 2/17/2006. According to the property tax it paid in 2007, it’s was probably purchased for around $2.4MM. Zillow currently has its “zestimate” for this property at $2.3MM.

As a comparison, it’s neighbor 945 Singing Wood (3 doors down with 25,000 sqft more land and an extra bedroom) sold on 11/08/07 – again price not shown (what’s going on with that?). Zillow shows a sale at $1.45MM seven years ago on 09/14/01 and has estimated values based on property taxes paid of $1.5MM, $1.57MM, $1.57MM and $1.60MM in 2004-2007. That’s a lot of numbers; let’s break this down.

The current seller wants $732/sqft or $3.45MM for this property. That’s down $265,000 from last November, but still insanely overpriced. This is a gorgeous property with an exceptional layout in an upscale community, but that doesn’t justify the ridiculous price.

A 20% downpayment for this asking price is about the same as many people’s entire home value. On top of that, I don’t know of too many people who can afford the $20k+/month carrying cost. Surely this isn’t just any normal home so it’s not for the average joe or middle class family, but don’t you think $3,450,000 is a little steep? We’re not along the coastline or in Beverly Hills – this is suburbia.

Obviously it was marketed for the high end buyer since they went all out with the professional photography and staging. Aside from the sky-high asking price, it’s a pretty good listing. Not that I can afford this now (or ever), but if I could I’d gladly pay up to $1.90MM for this beautiful house today. If it ever sells, I’ll give an update on the actual sales price.

1031 W. Foothill Blvd.

*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%

I had noted the large lots in this community in the profile on Monday and this property clearly exemplifies that feature with a full acre of land. Sure this is in an older neighborhood, but that’s almost unheard of in Los Angeles. You can fit an entire cluster of those new detached condos on there.

Purchase Date 07/26/2005
Purchase Price $1,700,000
Loan Amount $1,190,000
Downpayment $510,000

This seller put half a million dollars of his own money into this house and thus the bank will not be taking part in the losses. I doubt this property will go below $1.19MM. The seller on the other hand may very well lose a significant part of the $510k downpayment. A price drop down to the Dec 2004 selling price would leave the seller with a 40% loss on their downpayment plus the carrying costs for the 32 months of ownership. OUCH.

Listing Price History
10/29/2007 $2,100,000
02/06/2008 $1,998,000

These folks tried to make $400,000 in 27 months; that’s the equivalent of almost $15k per month. After being on the market for some time, the price has been reduced $102,000 or 4.9% of the original asking price. This sounds like a kool-aid concoction mixed with two shots of greed and served on denial. Don’t get me wrong, it’s a beautiful property, but do the sellers really think they’ll find a knife-catcher at this price? Apparently they haven’t found one yet after 5 months.

Since the original purchase was in 2005, they probably got a great rate on their loan. If it’s adjustable, they may be facing steep resets and want out. Either way, they don’t want to foot the bill for this estate anymore. Including property tax, maintenance and insurance, carrying costs could easily be over $10k/month.

Affordability aside, what would you be willing to pay for this property today?

1537 Hyland Ave.

*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%

“note, tenant occupied, lease up 7/31/08, currently leasing for $4,300/mo. can make offer subject to inspection, try longer escrow and take over lease for a few months or close on 7/31/08.”

This property has been on the market for 2.5 months and still has 4 months left on the current lease to the tenant. That means that the owner listed the property for sale a full half a year before the lease is up. The seller must be very anxious about the market to do that. It seems like neither the seller nor many of us here think that home prices will rebound in the coming summer – hence the sale.

I wasn’t able to obtain loan information for this particular property, but it was purchased about a year ago for $1,158,000 just as the subprime blowout started to hit the fan. It’s currently renting for $4300/month. I love finding rental rates because it gives me a direct rent vs. buy comparison.

GRM
$1,250,000 / $4300 = 290

I often use the GRM of 180 as a baseline comparison. Some have questioned my use of this arbitrary number to determine house value and I do agree this isn’t the most accurate way to go about it, but it gives a quick gut-check of the numbers. Applying the 180 gross-rent multiplier to the monthly rental rate would yield the following:

$4300 x 180 =$774,000

That’s $476,000 or 38% less than the current asking price. Just to put things in perspective, the difference alone is enough to buy out homes in most other parts of the country. I don’t know about you, but half a million dollars is a lot of money!

Are you wondering how appropriate is it to use this 180 multiplier? Let’s evaluate that. This exact home was sold for $600,000 in 4th quarter of 2000. That was before the crazy boom began so it’s a good starting point to use since the market was fairly stable at the time. If the bubble didn’t exist and I apply a 3% inflation premium to the previous purchase price, the house would be worth $760,062 in October of 2008.

$600,000 x [(1.03)^(2008-2000)] = $760,062

That’s very close to the value of the house calculated with the 180 GRM ($774,000). Does that mean that prices will fall 30-40% or more as the bubble deflates? I can’t say for sure, no one can. Do I think it’s likely to happen? Probably. What I can say for sure is that we’ll hear Lawrence Yun and the NAR call bottom many, many more times before the real bottom actually forms. I’m tired of hearing their lies, but they will continue on their campaign as I will continue mine. I have faith in my readers that they can distinguish the truth from the lies.

750 Arcadia Ave. #3

*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%

One of our readers, TY, has requested that I profile this property and I’m happy to oblige. Per the email- “The price is under $300 per sqft and it is in a desirable area, and I loved the layout of the bedrooms and the wood floor. One of my concerns was the property was built in 1974, and i don’t know if that would affect its value significantly in the upcoming years. I think that Arcadia prices will drop down somewhat for the next two year, but not significantly.”

There are several factors I consider everytime I review a property.

PITI (principle, interest, tax and insurance)

Using the assumptions above, your monthly mortgage payment would be about $2812. On top of that, there’s $465 for property tax (1%) and $116 for insurance (0.25%). For this particular property, there’s also a $210 HOA fee. I’m going to leave out the maintenance costs to keep this simple. That totals to $3603/month. For that price, you can easily rent a large, detached single family home in Arcadia.

Rental Comparisons

Home values are tied to comparable rents and income. From a quick search on Craigslist, I found a gated PUD on Fairview Avenue (3/2, garage, 2100sqft) for $2600/month and remodeled townhouse (3/2.5, garage) for $2295/month. As stated above, the cost of ownership at this particular asking price with 20% down at 6.5% fixed would be over $3600/month. That’s $1000-$1300/month above the comparables, not counting the lost return on investment from the $111,600 downpayment you’d have to put down.

Applying a quick gut-check with the GRM of 180 would put these two comparable units at $468k and $413k, respectively. Rent-saver buyers will probably not jump in the market until it reaches a GRM of about 160, but let’s use 180 to be conservative.

Recent Comps

Redfin, Zillow and all the other free RE search sites are wonderful and powerful tools because they pull all the data for you. From the same listing page it shows the nearby similar sales below. As you can see, prices are dropping for the nearby sales and since we’re in a declining market, the next sales should be at or below the previous comp sale price.

11/21/07 $651,000 3/3, 2032 sqft
11/08/07 $590,000 3/3, 1798 sqft
01/25/08 $560,000 3/3, 2146 sqft
03/07/08 $490,000 2/3, 1508 sqft

Although the current asking price is just under $300/sqft, the price of such a property would probably be much lower when we finally hit bottom in a few years. The previous sale in 2004 of $415k put it at $220/sqft and 2004 prices were already at elevated levels. The bubble started in 2001 and ended in 2006.This is a very dated property in need of a desperate renovations. It says in the description that the kitchen is newly remodeled, but it still looks like it did back in the 70s to me. In addition, this is an attached condo and attached properties typically don’t fare as well as detached PUDs or SFRs. I disagree with your view that Arcadia properties will not drop significantly. Just because it hasn’t happened yet doesn’t mean it won’t and I expect prices here to experience a correction similar to many other cities. Arcadia was not immune during the previous bubble and there’s no reason to believe it will this time either.

TY – You mentioned that you were a recent college graduate with a new job and couldn’t afford a place on your own. Congrats on that milestone, but for what its worth, I would advise not to buy this property at the current asking price. Prices are way out of line right now and it will pay off to wait for the correction to play out over the next few years. Some patience now would allow you to save up a good size downpayment and the chance to buy at a much lower price. Besides, you’re young and just starting out your career so things may change such that you might need to relocate. Life is too volatile; you just never know.

As a potential buyer, time is on your side so no need to rush into buying.

420 Columbia Rd.

*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%

Remember what happened to Shuttle Columbia back in 2003? It disintegrated upon re-entry and lives were destroyed. If the sellers at 420 Columbia don’t drop the price down to market values, they can slowly watch their equity disintegrate as well. It’s a very dated property and has been on the market for half a year. I don’t see any reason why a transaction would occur without a significant drop in price.

Listing Price History

09/23/07 $925,000
12/01/07 $899,000
02/27/08 $898,000

In six months time they’ve managed to only drop the asking price by a total of $27k or just 2.9% of the original listing price. Am I missing something here? After two months the price was reduced by $26k and then another two months later, the second reduction is a whopping $1,000. If they’re serious about selling, shouldn’t the price reductions be faster and bigger as it sits on the market longer and longer?

We have documented many properties with sellers who are refusing to accept the reality of the national real estate market decline and reduce their ridiculous asking price to market values. Because of that, their property often sits on the market for months on end – only to sell at a reduced price anyways. This chasing down of the market is not only financially draining, but also takes a huge emotional toll. The stress and uncertainty on the sellers can be a crushing weight even during better economic times so I cannot imagine the anxiety they face today.

To the many others out there, I advise you to price your property at market value. Market value is not what you paid a few years ago, what you think its worth or what your friends and neighbors say its worth. Market value is what buyers are willing to pay for your house today.

• Buyers don’t care if you overpaid.
• Buyers don’t care if you need this to fund your retirement.
• Buyers don’t care if you priced it so that you can repay that HELOC.
• Buyers don’t care what you think it’s worth.
• Buyers don’t care what your realtor says.
• Buyers don’t care. Period.

They do, however, care about getting a good price and in this market they’re looking for killer deals. In a declining RE market, market value is at or below the previous sale of a comparable property in the area. It’s not what properties sold for last year, in 2006 or in 2005. Those days are gone. Price to sell – it works only if you do it right.

930 Panorama Dr.

*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%

“SELLER ARE EASY TO WORK WITH AND WILL ENTERTAIN YOUR OFFER. SELLERS WILL DELIVER THE HOME W/ NEW CARPET IN DEN AT BUYERS REQUEST AND WILL WAX THE ORIGINAL OAK FLOORS ONCE ALL PERSONAL BELONGINGS ARE OUT. SELLER VERY FLEXIBLE ON ALL TERMS AND WILL LEAVE CREDIT IN ESCROW FOR CENTRAL A/C INSTALL.” Translation – We’re desperate for an offer, any offer.

Many people tell me that Arcadia is different in that people here aren’t desperate to unload property because Arcadians didn’t participate in any of that silly bubble mania. I’m repeatedly told that the people here are wealthy enough to not use option loans and/or 100% financing so the news headlines don’t apply here. I’m also told that prices are “holding well” in the lovely peacock city. Riiiight.

Purchase Price $960,000
Purchase Date 12/01/2005
1st Loan $768,000
2nd Loan $192,000
Downpayment $0

Another property purchased during the height of the boom with 100% financing! These people couldn’t even pony up the downpayment, but saw no problem taking out two loans to buy the house. The lenders aren’t any better in their greed to make closing costs, origination fees and whatnot in letting this loan go through. No underwriting plus greedy people plus lax lending standards equals massive bubble mania.

It’s been 27 months since the purchase and these owners want out. Actually, they wanted out over half a year ago after subprime woes reared its ugly head and the markets were crushed under the beginning of the credit crunch. Let’s take a look at their listing price history.

10/29/07 $1,175,000
11/01/07 $1,145,000
11/05/07 $1,120,000
11/27/07 $1,100,000
01/31/08 $1,080,000

I think we all know where this is going. After being on the market for six months, it’s clearly overpriced and headed for yet another price reduction. If they had reduced the price more drastically, it may have sold last summer instead of chasing down the market with these measly ~$20k reductions. Their realtor should have told them that. Oh wait, the realtor is the seller! “Seller is a Licensed Real Estate Agent” This is a classic case of realtors who drank too much of their own kool-aid and shows how knowledgeable they were about the market. This is their profession, yet they fell into the same debt-trap as many others.

You think they would know better. Apparently not.