Orange Crush: From the Frontlines
Chuck Ponzi October 26th, 2007
Jonathan Lansner reported on the most recent moves in median sales prices:
Early October home-selling stats from DataQuick show the credit crunch’s grip on the market. Difficulties getting mortgages meant sales activity was down 41% vs. a year ago for the 22 business days ended Oct. 12. If that holds, it’ll mean that O.C.’s losing streak will hit 25 straight months where the buying pace failed to meet last year’s activity levels.
Pricing was also weak. The overall median selling price, down 8.8% in a year, held at the 31-month low ($570,000) hit last month.
It appears that median prices are beginning to show the overall trend in pricing. This could mean one of 2 things:
1. Lower end is recovering
2. Higher End is also feeling pressure now.
Originally, I forecase a median price down year over year for 2007 to be in the 3 to 5% down range. That may prove to be too optimistic, and reality further from that.
Consider what is now typical pricing:
23 Nopalitos Way, Aliso Viejo
1923 Sq Ft 4-bd, 2.5bth. Gated Community. Recent foreclosure. Landscaping dead, dead, dead.
List Price: $604,900
Last Purchase Price: $740,000
Last Purchase Date: 9/13/2006.
Loss in Last 13 months if asking price is met: $135,100 (18.3%) (23% after commissions)
Zestimate: $756K (Can you say disconnected?)
These houses sold 5 years ago in the 300K range. I wouldn’t be surprised to see mid 400’s, if not low 400’s.
So, isn’t the 8.8% reduction in median price still skewed a bit high? Yes. On upswings, it understates the increase, and on downswings, it understates the decrease. It’s more of a lagging indicator.
Enjoy your weekend
I’m waiting for something like this in the mid 300K range in LA LA land.
Specifically Redondo Beach area.
I can dream.
I no longer dream about homes.
I have broken my habit… or my spirit has been broken.
My stock portfolio has done so well, why would I want to buy a depreciating asset again?
Unless it REALLY makes sense, we’re out of the market for a while.
Chuck Ponzi
I have similar thoughts.
I don’t think my stocks are doing that well though. Chasing inflation is all I’m doing.
Also trying to look at this longer term. If buying makes sense as an inflation hedge at some point perhaps I do it. However, that house would be bigger and more expensive than my current house. Do I really need to get sucked into that consumption spiral.
Anyhow, seems like we inch closer and closer to a deflationary spiral all the time. Stocks, gold all assets are high. Debt is hardly sustainable. Prices are skyrocketing. Just waiting for people to withdraw from the consumption chain. Be another hippie movement.
I feel lik a major outmigration from LA/OC/SD could be in the making. Just a general feeling nothing concrete yet.
My russian coworker who lived through a currency collapse is getting skitish about spending money. Went out to dinner and regularly full place had no line near peak hours.
LAEF2
Assets seem pricey if you think you’re following inflation. Real inflation is 10%+ Gold is just keeping pace. Other assets are too. A well diversified portfolio of international stocks centered around europe has done very well due to the expected Euro strength and dollar weakness. I’d still be looking at Chinese stocks with good p/e’s.
For the next 18 months, stay away from US consumer stocks. Better are things like industrial equipment that sell overseas. Financials will also be a good buy once they crater in about 6 months. Some insurance was still a good buy. I hold HIG… have you seen what they did with earnings? Everyone thought they had gorged at the subprime slop heap like AIG did. Their management seem a bit more prescient. We’ll see if that held over the next year. I may sell quickly if I suspect things changed.
I made some very good trades — enough to double in 3 years. Luck was on my side. And, that was from the house that I sold. I’m not bragging, I’m just relating that SoCal housing has been a bad investment for 2 years, and it will continue to be so for at least 3 more under the most optimistic scenario. At that point, I will buy at least one house, if not 4 or 5. I want my investment dollars to work for me. I’d like to see others who read this site do the same.
I am curious to what you think about very small homes. Lets say 1000sqft or less. Right now the bargains on these homes, suck big time. Like a 2 bedroom one bathroom in fullerton listed at 415000. Do you think these smaller homes are more at risk to pricing falls or do you think they will hit an invisible wall always slightly above the condo market?
Dutch Trader:
The ONLY floor under home prices are rental equivalents or replacement costs.
Figure $150/SF for median residential replacement costs or whatever it would rent for.
110-140 times the monthly rent.
That is fair value.
In my neighborhood a 1600 SF small older home rents for $1950/mo.
At 140 multiplier the “value” is $273,000 or $240,000 in replacement costs.
It might sell for $750,000 in today’s market.
There is a lot more bubble to deflate.
Can someone PLEASE help me understand? I looked up the house showcased in the “YOUR HOME” section of the O.C. Register for Sunday Oct 21, 2007 in Zillow. The address is 33952 Chula Vista Ave in Dana Point, 92629. It listed for $894,000.
Here is where I am confused. This house sold, in August. A 1953 home, 2bed/1bath of 950 sq/ft that last sold for $237,000 in 1999. The required income to buy this is $263K in a city where the median h/income is $73K. Less than 1.5% of households in the country meet that income requirement..yet this house SOLD?
And most, if not all of the ridiculously overpriced homes in the “YOUR HOME” section…sold. Also, if you look it up in Zillow and look at the 1yr graph…the price jumped over $200,000 in one month? What gives with this home and others like it? Who ARE these people that are buying them? Were these “sold” to the bank? Is it fraud? Did someone just feel like paying an extra $200K? What’s going on?
I could be a number of things… the most likely I can think of is its development value. Properties at that location (near the beach) and are zoned multifamily can be redeveloped into condos. Therefore, it has greater value than a SFR. I wouldn’t worry too much about it, those areas are in high demand and are going to stay that way because of their development potential. It doesn’t make sense long-term that they stay SFR’s anyway. Just watch for Talega’s prices and what happens there.
Chuck Ponzi
33952 Chula Vista looks like it was sold with the architectural plans and the entitlements completed to start construction on a new home. Does anyone know if that is the case?
Yes, the piper must be paid.
And that means biting the bullet on the losses.
On my site, this month I have free audio files from an anonymous real estate agent who has a lot to say about Short Sales and the mess we’re in.
http://www.AnonRecordings.com
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