2164 Canyon Dr.

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

A view from above – that’s what this property offers. It’s a spectacular view and I’m sure the sellers enjoy it, but they should really take a step back and take a look around the current real estate market. This is a classic case of how buying at the wrong time can really hurt you. Apparently having to take on two mortgages at over a million dollars didn’t deter these folks from buying. I wonder if they bought because they assumed they would be “priced out forever” if they didn’t.

Purchase Price $1,180,000
Purchase Date 09/01/2006
1st Loan $944,000
2nd Loan $118,000
Downpayment $118,000 (10%)

The conditions in which someone can comfortably afford this home is outrageous. How many people/families can put down $280k cash downpayment, have an annual gross income of $350k and afford monthly mortgage payments of over $7,000 excluding insurance, taxes and maintenance? I personally only know of one family who can afford a house at this price, but I may just be running in the wrong circle of acquaintances.

I include those values on each property profile to provide some perspective on how realistic these prices are once you remove the contributing factors to the housing bubble. People were able “afford” crazy bubble prices when there was a secondary mortgage market to lend out cheap money at artificially low interest rates. They were also able to get away with lying on their application about their income in order to secure the required loan(s). On top of that, buyers weren’t even required to bring the traditional 20% admission fee. When you combine all of the above with greed, it becomes the Grand Canyon of bubbles.

Now that all the dust has settled and banks realize people can’t honor the contracts they’ve signed and repay the adjusted mortgage payments, the market forces are reacting to make those necessary adjustments. Without the avenues by which to purchase this home for cheap, the market value of property will drop to sustainable levels.

This is a nice home with a huge lot up in the hills with a view, but that doesn’t justify the outrageous $657/sqft asking price. The sellers bought on the high in late summer of 2006 and hoped for the double-digit appreciation to continue. Now that the market turned sour, they are looking to get out and are demanding to make $135k after 6% commission. Buyers who can actually afford a $1.4MM home are expecting more than this property has to offer and others who are looking for a home of this caliber are turned away by the asking price. No wonder it’s been on the market for 125 days!

Here’s some mid-week humor…

1844 Anita Crest Dr.

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

Sometimes I wonder if a seller is serious about selling their property. Even after being on the market for 4 months, they have refused to lower the asking price. What are they waiting for? Do they think they simply haven’t come across a buyer who likes their home? There’s a buyer for every home in every market – at the right price. Apparently, $900,000 is not the right price for this particular property.

Purchase Price $615,454
Purchase Date 12/11/2003
Loan $462,000
Downpayment $153,454 (25%)

With other 3 bedroom SFRs like this and this in the north Arcadia area renting for $3000/month, this property is overpriced. If someone puts down the $180k 20% downpayment, the monthly payment is still 50% more than the comparable rentals in the area.

$900,000 asking price / $3,000 rental comparison = 300 GRM

By extension, if you assume the 300 gross rent multiplier is 50% more than the “right” GRM for a desirable such as the Highlands, that would mean that the appropriate GRM in that neighborhood is a 200. Of course, there’s no hard rule on the use of the gross rent multiplier, but I would say that 200 sounds about right. Rent-savers and investors probably won’t jump in until we reach GRMs of 150-180.

The previous purchase in 1993 was at $362,000. That was about halfway through the 1990s real estate correction which lasted a total of 7 years. This property most likely dipped down to the low $300k in the mid-90s and the made its way back up to the million dollar mark during this recent bubble. How much this home will eventually sell for is anyone guess. If they don’t lower their asking price, buyers will simply overlook the property and the owners will end up chasing down the market like so many others we have seen.

Perhaps they should read about how to sell a house in this market.

2165 Highland Vista Dr.

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

“New windows, plantation shutters, doors and wood floors, were installed several years ago. The sunny kitchen has recently had manufactured granite counter tops installed as well as a new kitchen sink, double convection ovens and Italian 5-burner gas cooktop.”

From the title information, this appears to be an investment property and according to the description noted above, it’s also a flip attempt several years late. I find it odd that the sellers would spend money on new appliances, hardwood floors and granite countertops, but leave the dated kitchen cabinetry. If I were a buyer, I would still classify this as a fixer. The plantation shutters are nice, but most of the rooms still need some work. The property is nice, but dated and could use a refresher. Additionally, instead of worrying about significant home repairs after you move it, it might be wise to consider purchasing a home owners warranty.

Purchase Price $455,000
Purchase Date 05/23/2001
Loan $364,000
Downpayment $91,000 (or 20%)

This was purchased 7 years ago for half of the current asking price. The original listing price from March 2nd, 2008 was $925k and was reduced to $899,500 yesterday. The purchase in 2001 was already showing some symptoms of early-bubble fever. The previous purchase just two years prior in 1999 for $365k meant that the 2001 purchase for $455k gained 11.7%/yr appreciation. Incomes and comparable rents don’t jump 11% a year. Little did we know that 1999-2001 was only the beginning of a massive housing bubble.

If there the bubble did not exist and we applied the 3%, 4% and 5% compound annual appreciation to the 2001 purchase price, this property would be worth approximately $560k, $599k and $640k, respectively. If we use that as a baseline comparison, that means this property is overpriced by over 40%. Surely one can make the argument that this property is worth what buyers are willing to pay for it today and although it may not be $640k, it obviously wasn’t $925k. It’s another classic case of sellers chasing down the market.

Will someone pony up money to buy at the current asking price? Who can put down $180k cash downpayment and support a $720k mortgage at today’s interest rates? Who has good credit? Who has the documented income to secure such a loan? And most importantly, do the people who qualify for all of the above even like this house? Perhaps. Perhaps not.

1714 Highland Oaks Dr.

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

“Completely redesigned by daniel deleon design, the subtle, yet tasteful, Asian contemporary elements lend it a zen-like ambiance and the great floor plan is oriented to fully enjoy yard and canyon views. Move from the brand new kitchen into the large great room or spacious dining room. Enjoy the fireplaces or the view from either room. Truly a turn-key home, it boasts a media-ready family room, a master suite, private in-law or guest apartment, all new windows and doors, hardwood floors throughout, large under-ground wine cellar and many other fine features.”

This is a beautiful property and an example of why I’ve fallen in love with parts of Arcadia. Although it was built in the 50s, it’s been completely remodeled and in my opinion look leagues better than any of those mcmansions that have sprung up over the years. It sits up in the hills on the east edge of the Highland community, which I will profile soon. Without any neighbors along the back of the property, it’s probably very private. I like this house and could I afford it, I would probably buy it.

Back to the profile part of things, this is a flip. It was purchased a little over half a year ago for $980k and renovated to its current state. The original structure was half a century old and from the pictures, it seems like it was a complete gut. It’s also the first property I’ve profiled that has an underground wine cellar. If that wasn’t original, the flipper spent a lot of money digging dirt.

Purchase Price $980,000
Purchase Date 08/24/2007
1st Loan $784,000
2nd Loan $98,000
Downpayment $98,000 (10%)

With similar sized homes in the Highland Oaks area renting for $3,000/month, this property is overpriced. Granted, it was completely renovated, but I find it hard to believe it would rent for anymore than a 25% premium (or $3,750/month). A recent sale on 1728 Highland Oaks just up the street sold for $910,000 in February 08. That property had one less bedroom, but was of comparable size in the same community. At $910k, the sale occurred at $379/sq-ft.

$379/sq-ft x 2,788 sqft = $1,056,652
$910,000 (recent comp) / $3,000 (rental) = GRM of 303
1,358,876 (asking price) / $3,000 (rental) = GRM of 453

Admittedly, it would probably be worth a little more than $1,056,652 right now because of the remodeling that was done to the property, but I don’t think it’s $300k+ in renovations. That’s at today’s prices. I would venture to say that a home like this could dip as low as the $900k’s in a few years time.

Thanks to our reader 626chump for alerting me to this property. If you end up going to the open house this weekend, don’t forget to come back on AHB to let us all know how it went. Also, I invite anyone else who attends open house(s) to drop a comment or two about how the market is doing. Since I’m not currently in the market to buy, I’m not evil enough to attend open houses just to make low-ball offers. Although, that will change as the market correction continues.

Have a wonderful weekend 🙂