Property Profiles

Torrey Pines – The McMansion of McMansions

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388 Torrey Pines Dr.

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Asking Price $4,698,000 ::: Sq-ft 8,616
Purchased Price – ::: Lot Size 24,638
Purchased Date – ::: Beds 6
Days on Redfin 27 (56 Zillow) ::: Baths 9.25
$/Sq-ft $545 ::: Year Built 2006
20% Downpayment $939,600 ::: Area Highlands
Income Required $1,174,500/yr ::: Type SFR
Est. Payment* $23,753/month ::: MLS# A08011954

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

Torrey Pines – it’s back.

I saw the other Torrey Pines monstrosity last year (386 Torrey Pines – the neighbor) and almost puked. According to Zillow, 386 Torrey Pines was on sale for almost a whole year before it found a sucker in September of 2007 who bought it for a whopping $4.25MM. And now, this seller wants to make a killing too – listing 388 Torrey Pines Dr. for a mere $4,698,000.

I can’t seem to find any lender/loan and previous sale information for this property, but the mailing address is in Nevada so this may have been purchased as a flip by a specuvestor. I can’t imagine someone buying property in Arcadia as vacation property, but who knows.

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Over 8600 square feet of indoor space, 6 bedrooms, 9.25 bathrooms and more Pergraniteel than you’ll ever want. I don’t hide my disdain for gaudy mcmansions, but this is the mcmansion of mcmansions. The builder/architect had over half an acre of land and they still stuck the ugly 3 car garage in the front of the house. The outside of the house looks absolutely hideous and to think that the monthly carrying costs for this house is on the order of some people’s annual salary is mind-boggling.

I profiled this house not only because it’s the most expensive listing in Arcadia today, but because it captures the frenzy of this housing bubble in the SGV area. Specuvestor buys a property at inflated prices, tears it down to build a mcmansion, fill it with granite counters, pergo floors, designer colors, stainless steel and turn around to sell the flip at some insane wishing price to a knife-catcher. Yeah, that just above sums it up.

The neighbor got lucky and got out last September. Do you think this seller will be just as lucky?

Misc. Post

From American Dream to Nightmare on Main St.

Whether you agree or disagree with the bearish views on this housing blog, you’re here because you’re interested in the state of the housing market. Unlike the stock market or other financial sectors where participation is voluntary, the housing market is not. Everyone needs a place to live – rent or own.

From the early days of civilization to the ever changing world of the 21st century, humans have sought for a place to call home – a place of their own. While a house provides shelter from the elements and a place to sleep, a home provides a sense of security and belonging. There is no doubt the biggest part of the American Dream is the home itself.

It’s understandable why people desire a piece of that pie, but it seems that our society has forgotten the means by which to attain it. Through its history, America has prided itself as the land of opportunities – if you work for it, you can achieve anything. However, instead of working hard and saving money, we’ve become a nation of debtors. A nation of residents with rampant credit card debts, negative savings and no solid plans for retirement. This would normally be balanced out and corrected with a healthy dose of financial responsibility, but the negligence of the government and the greed of Wall Street kept the kool-aid fountain flowing for years.

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Either through uncontrolled consumerism or immense greed, our society has bred the wrongful mentality of rightful home ownership. If you didn’t know any better and all you witnessed was the frenzy of the last few years, you would think that home ownership is a right, not a privilege. Only prudent, financially responsible, law-abiding people should have the privilege to own a home. Sadly, that was not the case during the bubble.

In the last half decade, many people disregarded any sort of market fundamentals and overstretched themselves to buy a piece of the American Dream. Some risked their life savings and others risked nothing more than their credit, but they all wanted it without considering the consequences of their actions. It amazes me that people can’t understand the simple concept of Don’t-Spend-More-Than-You-Make.

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Many of these dreamers didn’t just want any home. They wanted their dream home complete with a three car garage, gourmet kitchen, pergo floors, loving wife and 2.4 kids. It’s a lovely thought, but because of their irresponsible actions, it will soon be nothing more than a fleeting thought. Yes, the American Dream is worth pursuing, but doing so through unethical and irresponsible means will turn that dream into a nightmare faster than you can say foreclosure.

Property Profiles

Normal Price Reductions

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35 W. Norman Ave.

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Asking Price $1,180,000 ::: Sq-ft 2,854
Purchased Price $1,269,000 ::: Lot Size 0.42 acres
Purchased Date 07/27/2006 ::: Beds 4
Days on Redfin 92 ::: Baths 3.5
$/Sq-ft $413 ::: Year Built 1926
20% Downpayment $236,000 ::: Area Santa Anita
Income Required $295,000/yr ::: Type SFR
Est. Payment* $5,966/month ::: MLS# H07166852

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

This is listed as a single family residence, but from the description it’s really a triplex with an office and guest house in the back. From the view on Google maps, the layout seems broken up and poorly designed. The house is also fairly old and there’s no mention of renovations or pictures of the inside so I suspect that it’s probably not in good condition.

After 3 months on the market, the seller seems to have gotten the point about where the market is headed with multiple price reductions. Unfortunately, they bought during the peak of the bubble so it will probably see additional, even steeper reductions before a knife-catcher is lured into buying.

Purchased Price in 7/2006: $1,269,000
Downpayment: $270,000
1st Loan: $999,000

Listing History

Nov 19, 2007 $1,338,000
Nov 21, 2007 $1,298,000
Dec 28, 2007 $1,250,000
Jan 11, 2008 $1,230,000
Feb 13, 2008 $1,180,000

It started out as a hopeful listing at $1.338MM which may get them out without loses after fees and commission. However, it only took 2 days for them to realize that the market wasn’t going to take that and the price was dropped down $40,000 (just $2000 above their original purchase price). The holiday season must have been really slow so the 2nd price drop was a bit steeper at $48,000. The 3rd reduction came a couple weeks after that with a drop of $20,000. Finally, after a whole month of waiting, the 4th price drop is currently also the biggest at $50,000.

In total, the seller has reduced the asking price $158,000 in 3 months. How many more price reductions will it take to sell this house? How long will the sale drag out before a transaction occurs?

If the seller gets the current asking price of $1,180,000, he will lose $159,800 or 59% of his $270,000 downpayment after 6% commission. That’s a lot of money to lose in just two years time. It will only take another $117,000 in reductions for the owner to lose their entire downpayment after fees. Will he cut his loses now and reduce the price drastically in hopes of finding a buyer? Or will he hold on to the current price until it’s too late?

This is a sign that some sellers understand what’s going on and have continued to reduce prices to move a property off the market. This will become more of normal as things get tougher in 2008 and 2009. It takes a lot of umph to face reality and accept that you will lose money on a house. I commend this seller for lowering the price, but those reductions will have to be much steeper. Who is willing to buy a 82 year old house for $1.18MM?

Property Profiles

Flipper Turn Sucker

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807 W. Camino Real #B

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Asking Price $569,900 ::: Sq-ft 1,883
Purchased Price $481,500 ::: Lot Size 2,047 sqft
Purchased Date 01/11/2008 ::: Beds 3
Days on Redfin 4 ::: Baths 2.75
$/Sq-ft $303 ::: Year Built 1986
20% Downpayment $113,980 ::: Area Near TC
Income Required $142,475/yr ::: Type Att. Townhouse
Est. Payment* $2,881/month ::: MLS# A08022540

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

Every time I think people finally see the light and realize the US housing market is going down the drain, someone always surprises me. Here we have yet another flipper who thinks he can make some money by putting in new carpet and a new coat of paint. Unless the walls were painted in pure gold, I can’t see how they can justify $88,400 in profit.

Sales History
Sept 20, 1994 $198,000
Oct 13, 2005 $539,000
Dec 20, 2006 $589,000
Jan 11, 2008 $481,500

The flipper must have thought he got a great deal at $107,500 under the previous purchase price. This property was bought just 5 weeks ago as a flip in this dying RE market. I can’t understand why or how anyone can ignore the market forces, but I didn’t drink any of the kool-aid either. It’s another classic case of greed over-powering sound financial sense.

This flip was purchased just last month so the databases still haven’t been updated with loan/lender information. Since banks aren’t making any more 100% loans, how much do you think this flipper put down? 5%? 10%? 15%+? How much will they lose when all is said and done?

This flipper sucker is in for a world of hurt.

Inventory

Inventory and Market Report – 2/16/08

Zip Codes: 91006, 91007market_icon.jpg

Current Market Listings as of February 16th, 2008
Properties for Sale: 248
Median Listing Price: $755,000

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Foreclosure Updates as of February 16th, 2008
Properties in Foreclosure: 10 (+2*)
Properties in Pre-Foreclosure:70 (+4*)
*Compared to previous week.

In 2000, the estimated median value of homes and condos in Arcadia was $393,700. Based on U.S. Census data, that figured ballooned to $903,500 in 2005. That’s a 129% increase of value. Do your investments return 25.8% annually?

Just 5 months ago, Doctor Housing Bubble had reported that “Arcadia with a median of $752,000 is up 19.3 percent year-over-year.” Will 2008 see more record appreciation levels?

Property and foreclosure numbers obtained from U.S. Census, ZipRealty, Trulia, Yahoo Real Estate and Foreclosure.com. Market listings obtained from DataQuick News.

Property Profiles

$952/sq-ft in 91006

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1431 S. Santa Anita Ave.

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Asking Price $1,149,000 ::: Sq-ft 1,207
Purchased Price $816,000 ::: Lot Size 19375 sqft
Purchased Date 02/17/2004 ::: Beds 3
Days on Redfin 150 ::: Baths 1
$/Sq-ft $952 ::: Year Built 1946
20% Downpayment $229,800 ::: Area Santa Anita
Income Required $287,250/yr ::: Type SFR
Est. Payment* $5,809/month ::: MLS# W07137114

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

This is the most over priced house in Arcadia and probably the most over priced house I’ve ever seen. When I decided to sort by $/sqft in Redfin for this post, I was expecting to see many $4XX/sq-ft and maybe a handful of $6XX/sq-ft, but nothing prepared me for what I found.

A whopping $952/sq-ft. That’s no typo.
$1,149,000 for a 1,207 square feet 62 year old house.

This property was purchased almost exactly 4 years ago for $816,000 with 50% downpayment. Think about this for a minute. The owner plunked down $408,000 of cash to buy this and still owe the bank another $408,000. They dumped more money into the house when it was renovated 2 years ago and now they want to make $333k in just 4 years. That’s equivalent to making $83,250/yr after taxes. Do you think this is worth $1,149,000?

It’s been on the market for 5 months with just one price reduction ($48,800). There’s obviously no justification for this outrageous asking price. The granite counters in the kitchen don’t cost $333k. Perhaps it’s the non-landscaped yard or the old pool with green water that they hope will bring in an offer. If the seller or realtor is reading this blog, please leave a comment and let us all know why you’ve listed the house at this price. That is, if you can come up with a reason other than greed.

It’s another case of a delusional seller ignoring the market and hoping for a huge payoff. I wouldn’t pay half of the asking price for this house. Not half.

Analysis, Property Profiles

To buy or not to buy…

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That is the question.

That may not be Hamlet’s question, but that is certainly the question looming over potential buyers as they try to decide whether or not to purchase a home right now. I’ve said before that comparable rents is a key indicator of market fundamentals and I still think that holds true today. To truly account for all the pieces of the puzzle, prospective buyers should take all the factors into consideration. That means property taxes, HOA fees, maintenance, insurance, mortgage payments and the whole works.

While that may be the best way to go, it requires multiple calculations and as far as I know, most people don’t bring a laptop with them to open houses. Enter the GRM – gross rent multiplier. It’s a simplified version of the calculations that investors have been using for years. It’s not a precise analysis (as it doesn’t take into account paid utilities, taxes, insurance etc), but it wasn’t meant to be more than just a gut check. Using the GRM would give you a quick overview to determine whether the rental cost will cover the cost of ownership. This is a good tool for investors, but also very useful for potential buyers looking to evaluate RE values.

Overall Annual formula
Market Value/Annual Rental Income = GRM

Monthly formula
Market Value/Monthly Rental Income = GRM

There as been much debate as to what magic number is the “right” GRM. I tend to think there is a GRM range instead of a single value since it’s really just an estimate. Many have used the overall annual GRM of approximate 15 (15 x 12months/yr = 180 monthly GRM) for rent savers and approximately 8 to 10 (9 x 12months/yr = 108 monthly GRM) for cashflow investors.

Let’s apply this quick calculation to some Arcadia properties that are both for sale and for rent.

#1) 900 Victoria Dr. 91007
4bed, 2bath, 2034 sqft in Peacock Village
Rent $2900/month (Craigslist)
Asking Price $880,000 (Redfin)
Annual GRM: 25.3
Monthly GRM: 303.5

#2) 130 W. Longden Ave. 91007
4bed, 4bath, 2913 sqft in central Arcadia
Rent $3900 (Craigslist)
Asking price $1,328,000 (Redfin)
Annual GRM: 28.4
Monthly GRM: 340.5

#3) Similar New Construction Townhomes
3bed, 2.5bath, ~1865 sqft off 2nd St.
Rent $2850 (42 Diamond St. Craigslist)
Asking Price $750,000 (50 Genoa St. #B Redfin)
Annual GRM: 21.9
Monthly GRM: 263.1

These are good examples how the gross rent multiplier can be useful. Although not a precise evaluation, these GRM numbers are so far beyond the traditional, acceptable range of 160-200 that there’s no point in even considering a purchase. Surely one can argue that the GRM is just an arbitrary number, but it only takes a few calculations to show that the ownership carrying costs for these properties are more than double that of the rental cost. It makes absolutely no financial sense to buy these homes at these prices when you can rent them for much, much less.

There’s a long way to go before rent savers and investors jump back into the market to create a bottom. The NAR will probably call the bottom five or six times before the actual bottom even begins to form. Sit back, grab a drink and enjoy the show.

Tracking the Arcadia and San Gabriel Valley Housing Market