A true test of price appreciation

I thought I had written about 700 W. Sycamore but alas my own search function has failed me.

It has quite a bit of history and if memory serves was a failed sale that turned into a rental. Now it’s time to test the waters again.

(I think) Sold as new construction in 2016 for $2 mil.

Sold early Covid 12/2020 for $2.3 mil (+16% over 4 years)

Listed 9/2022 for $2.6 mil and fails. Tough times.

Listed for rent at $7500 in November 2022 at $2/sqft. One of the last great real estate deals in town.

Fifteen months later it’s back on the market at the same asking price that failed in 2022.

The math hurts my brain. Leasing out a $2 mil house for $7500 is a huge hit to cash flow. Property taxes alone are ~$2k/month. Now after losing god only know how much per month they are back trying to sell.

$758/sqft is fair but it’s also prime Hyperion zone. Add in the dog walkers that are always parking on your street, really close to every plane leaving LAX and it makes you wonder what special person thinks that $2.5 mil is a good value?

There are only a few other homes for sale that are bigger than a 3/2.5 so it’s the best option. As long as you are willing to drop that kind of money for the issues that accompany the location.

It also goes to show true appreciation or lack thereof in regards to real estate pricing. Real estate pricing is all guesswork, speculation and fanciful dreams being propped up by the likes of Zillow and real estate agents. If it closes at $2.6 (likely) then that’s a 12% increase in four years. That’s 2.8%/year. Last year the S&P 500 did ~24%! And people are risking their livelihoods, sanity and their mental health to blow every red cent on a home in hopes that it pays off…eventually.

(BTW shoutout to ChatGPT for calculating the CAGR because I’m now too old to even remember the formula. )

It’s a nice home. And fairly priced but I think it also speaks to the existing market for El Segundo. 3k sqft $2 mil homes are still a challenging sale in Smell Segundo.

“Lease Price Improvement”

A few months ago Gina Hoffman posted a rental listing for 508 W Sycamore on the El Segundo Parent’s Network Facebook group. As usual there were tons of comments about greed and overpriced listings. If memory services there were also comments that came to her defense about the cost of doing business blah blah blah. Gina is always a pro and stays the eff out. (this isn’t her first high-priced rodeo)

As much as I bag on the local realtors, they are doing their job. If I had units to sell or rent I want top dollar. I also went to business school and capitalism is in my blood. But I’m also old enough to see how capitalism at the expense of one’s neighbor has gotten out of control. Why are you and I being asked to tip at every turn, because we are being asked to subsidize shitty wages so companies can pay enrich shareholders. If I hear another door dasher or Uber driver complain that “tips are how they make a living” I will throw-up. Blame the game not the player. Rant done.

Back to Gina and her asinine-high-as-she-possibly-fucking-can prices.

Not sure what shenanigans went on here that the house changed hands at $1.43 and then three months later ends up as a $6k rental. Maybe a flip gone bad? Anyone have any color? $6k will not cover a $1 mil note so they were fucked from the start.

So Gina gets raked in the comments for asking $6k for a 1000 foot 3 bedroom, one fucking bath house and rightly so. It’s stupid. Its greedy and as much as this town professes to be Mayberry – it’s worse than Beverly Hills in the greed department. And as we can see she didn’t find anyone stupid or desperate enough to take her up on $6k. So down we go. Down 12% to $5250. And guess what? It’s sat empty for two months because of greedy pricing. Let’s call that a $10K loss of income assuming they get $5k for it. By being greedy they lost out on $10k or 16%. So had she just priced it correctly someone would have jumped and the client would not have lost out on $10k in income.

What brought this to my attention was this several hundred dollar color ad in the Herald advertising a “Lease Price Improvement”. Good job Gina.

My apologies for the Eff bombs but sometimes the greed pisses me off.

Smell Segundo

Another day, another catastrophic sewage spill by our neighbors, Hyperion Water Treatment Plant.

Odors come after storm-caused power outage at Hyperion, damaged equipment repair – Daily Breeze

This time they are saying too much rain water overwhelmed the system so they had to unload ONE BILLION gallons of raw sewage into the ocean.

I misread – Hyperion released 1 Billion gallons of treated water into the ocean. Corrected by a reader. Thanks.

If you want a little history here’s another post about Hyperion and how bad it can stink in El Segundo:

I don’t always smell it but when I catch it, it’s like someone set a porta potty on fire. There is a local facebook group that posts about the stench and residents on the west side of town have been living in misery for the past several years after the prior “accident” at Hyperion.

The city of LA doesn’t care enough about little ole El Segundo and it appears that the City of El Segundo is unwilling to play tough and anger the city of LA and hold them to the fire. It’s all a joke with people playing dress-up politician. But I did read in the paper that they passed a law….that goes into effect in 2027. So just a few more years and our town won’t smell like shit!! But then again it’s smelled like shit since Hyperion was built so I guess, like the plane noise, I should shut up and get used to it.

Has it affected property values? Maybe. Anyone that comes into town is often hit with a funky smell and on a bad day it would make any prospective renter or buyer change their mind. But this is El Segundo. People that are renting or buying are probably already local to the area. And sadly like a lobster in a pot of cool water on the stove, you get used to the smell. It’s only when I leave town and come back that I really notice it. Locals make due. People that want to live in El Segundo have their reasons and often those reasons supersede logic. It’s not like they can go to West Chester or Manhattan. One is LAUSD and the other is several notches up on the economic scale.

post script.

I saw this on facebook and had to laugh. I guess after THREE YEARS of shitty smells The Mayor of El Segundo is finally motivated enough to do….something.
GMAFB

The most expensive zipcodes in LA

https://www.foxla.com/news/los-angeles-most-expensive-neighborhoods-square-foot?link_source=ta_first_comment&taid=65b2971bde625d000149e99b

Most Expensive LA Neighborhoods (per sq ft)
Beverly Crest: $1,310
Venice: $1,213
Hollywood Hills West: $1,209
Cheviot Hills: $1,145
Bel Air: $1,138

Average Price per square foot for El Segundo in 2023??? Drumroll……

$1075/sqft

Congratulations to the oligopoly of el segundo real estate agents for collectively holding up and increasing property values in a shit economy with growing job insecurity and a year(s) of raging inflation.

Is it sustainable? I would guess yes. None of the local henchman are going to arbitrarily decide that prices are too high. Unless there is a catastrophe that motivates a very large number of residents to sell their home….it will largely stay the same. (Another catastrophic sewage spill? nah not bad enough)

I’ve said it many times. Prices are set at the margin. For those who didn’t take economics, that means it only takes one sale to set the stage for the “entire” El Segundo Real Estate market. House A sells at $1000/sqft hence House B is listed at ~$1050/sqft because it’s newer or nicer or they just feel like asking for more money. When house B sells, the new price is set at $1050 and when House C prices they will base their pricing on the sale of house B. Logical? No. Might as well be some new Davinci painting that was found in a basement. But with so little transactional data (only ~69 SFHs sold in the past 12 months) then that’s the only metric agents use to price homes. If we were in a bigger city like Culver or Santa Monica there would be hundreds of data points but if you want to live in our stinky little city, you have to pay up.

Sold in “Two days”

Oh Bill. Thanks for the baby pumpkin. That plus the little anecdote in the paper that 336 Valley Street was sold in “two days” prompted me to write.

336 Valley has been on the market for over a year – yet Bill can say he sold it in “two days”.

336 Valley is a green, weird, dare I say ugly, 2300 sqft 3/3 on a cul-de-sac and 7,800 sqft lot. Why in the world did it take ~14 months to sell?

The short answer is they used an out of town realtor. Even though 336 Valley has made the bog 4 times I didn’t note the previous realtor’s name. Probably because it was a stranger that didn’t warrant mentioning. It first listed in July 2022 at $2 mil. It closed at $1.8 mil which is only a 10% hit if you don’t consider the carrying costs; but that’s not how finances work.

Let’s be honest, this didn’t move because bill relisted at $1.9 mil and then accepted $1.8, it’s because Bill knows people.

For those new to the class there are a handful of realtors in El Segundo that run the show. We see buyers and sellers attempt to use real estate agents that “aren’t from around these parts” and more often than not it fails. Why, because this is fuckin Mayberry. If you thought we were joking, we weren’t.

When we first moved to town we used an out of town realtor. A long time family friend that helped us buy and sell our previous home. It felt strange showing up to open houses only to find that the house was already sold. We weren’t in the club. Our realtor wasn’t in the club. We lost deals and were late to the party.

On our second home buying expedition we used the godfather and the seas parted for us. We got shown homes that weren’t on the market and got special, early access to the coming-soon options. The four horseman of El Segundo realty know who is selling, who’s buying, who is on the sidelines, who’s family member passed away and who just got a job out of state. They know because they care. This is their home. This is their business. For as much as I bash them for being greedy pigs, I have to commend them on knowing, living and breathing El Segundo.

336 Valley changed hands 2017 for $1.25 mil. The carrying cost on that is about $6k/month. So whether they delayed their move or it sat empty that’s roughly $90k in carrying costs that could have been profit if they had taken less than the $2mil asking price earlier. Lesson learned? Probably not.

When at first you don’t succeed…

When at first you don’t succeed, rent it out.

I think? Seems shady AF but I think that since the property is for sale they now have an empty unit and hope to make a few bucks while they say their prayers for a sale.

955 Virginia is a two on a lot of sorts that listed for $2.5 mil. I looked at it for a second but the economics of an $18,000 monthly payment to live in a 3/2 and earn ~$3500 in rent was/is pretty bad. 8% interest rates will do that.

Now one of the 3 bedroom units is for rent as a furnished rental with “flexible terms” for $6k/month. It’s an 1850 sqft 3/2. Not the worst deal we have seen in town yet….Just days later 724 W Acacia comes up for $5700. A proper SFH that is 1000 square feet bigger and has one more bedroom and one more bath.

I get it, not everyone took economics or business classes but therein lies the problem with a financial industry based on monkey see-monkey-do pricing. 123 Virginia rented for $4/sqft therefore my rental should be priced at square footage x $4. 225 Virginia sold for $1100/sqft therefore my home is worth square footage x $1100.

That’s the lame-ass math that realtors use. They use a fancy word called “comps”. Yes there is some back of the envelope math that make it work, but it’s also bullshit pseudo science. The last home we had in escrow looked beautiful from the street. We hire a contractor to look at the work and he called in lipstick on a pig. So who was right? The realtor that didn’t bother to look past the new siding and paint and valued at $X mil or the contractor that told us it may flood, needs a roof and every piece of wood under the siding is probably rotten.

All these fly by night landlords will get burned just like a lot of the airbnb entrepreneurs are getting burned. Renting as if all things will remain the same. Demand, inflation, rates, no horrific accidents or catastrophic equipment failures and tenants that give a shit. That’s not how business works and when you are leveraged at 80% it’s how people get in a lot of trouble.

Or maybe I’m wrong. Someone will make the decision that they can make an $18k monthly payment if they can squeeze $4500 out of the rental (or cough $6k). Good luck.

Everything is 100% fine

Nothing to see here folks, everything is fine. Just move along.

It’s the same as it has been for ~9 months although the temp is slowly rising. Inflation is “3.7%” says the fed! Meanwhile gas is $6/gallon and a single bag of groceries is $100. Yeah – inflation is cured. I have complete faith in our government’s ability to manage data.

Mortgage rates continue to climb – also fine. (but hey, those HYSA rates are also up)

Local home sales are stagnant and as typical for El Segundo we have no-nonsense prices like choosing between $1400 sqft or $732/sqft. Seems logical.

How many hundreds of thousands of striking union workers are picketing across the country? All asking for a COLA raise that makes up for horrific inflation and corporate greed. Totally fine. It’s nothing

Will something eventually break? TBD but every time I drive by these stale listings that have been on market for almost a year I’m reminded of my Economics 101 class. A new price will be set when equilibrium meets supply. As we have seen with local real estate, supply is up but until the price drops, that supply will remain unsold. In this photo the prices of the the stale listings are high on the blue supply line.

While digging I noticed that 539 W Maple is marked as contingent (as of 8/25). That home started at $2.6 mil in April and dropped to $2.5 mil in June. Let’s see what it took to get someone to buy it.

In more WTF news 715 Hillcrest is back on market after changing hands four MONTHS ago. No Joke. It sold in May for a astro-fucking-nomical $1.45 mill for a 1066 square foot two-one!!! Looks like in just a few months someone realized that that college dorm living isn’t for everyone. They are trying to recoup their commission by listing is for $50k more. In May 2023 a jumbo 30 year was 6.3%; that same loan will cost 500 basis points higher today. That little bump increases the mortgage 5% to $9800/month! Before your $1200/month in property taxes. Someone is likely spending ~$11k to live in a two-one overlooking Hyperion the ocean.

Totally fine.

Affordability hits new low while rates hit new high

FUBAR

Despite was Jerome wants to tell us, Inflation is still burning through the wallets of Americans. Couple that with high rates (aimed to cool the rampant inflation) and we are fucked. Two bags of groceries is still $100 and gas is $5.50 so don’t tell me inflation is back at 3%

Home affordability has hit a new low. With the current rates a home buyer needs to make $105K to afford the average house. For many of us in SoCal that number doesn’t seem high because everyone spends like they make a half mil but only 18% of Americans make over $100k.

Today a 30 year mortgage will cost you 8%. Up from the 3% rates a few years ago a payment went up ~70 effing percent!

Let that sink in. A million dollar loan would have cost $4216 a year ago and that same house would be $7338. Not sure about you but in the past year I didn’t magically find an extra $36k in my disposable income.

There is talk of money on the sidelines waiting to buy when rates fall, but I don’t buy it. (and rates aren’t done rising) We are so far away from prices being reasonably close to income levels that it will take some significant price changes to get people off the sidelines. Couple that with multi-level developers getting in trouble because they can’t refinance the short term loans they took out a few years ago.

Are we close to something breaking? I’m done making prognostications but things are definitely broken.

Locally we have 14 listings active on zillow and most are at or above $2 mil. That’s a $14k/month payment. I guess that makes the asinine $8000 rentals look reasonable.

This is not normal. All of the free money and low rates over the past 15 years have created this monster.

And Let’s Fucking Go El Segundo Little League Team as they play their final US little league World Series Game in a few minutes.

An expensive lesson on West Oak

One of my seven readers pointed out the listing at 311 W. Oak. Something is fishy. Someone fucked up? Or maybe I don’t WTF I am talking about.

Listed in May 2022 and sold in June 2022 for $2.3 mil. Then they immediately went looking for a tenant at asinine rental prices. $8500, then lowered to $7500, then lowered to $6800. You know how that reads to me – their greed cost them $13k in lost income while they tried to rape potential renters. Looks like they found a one-year tenant at $6800 and after a year of pain have listed it for $2.295 mil, just under what they paid.

It’s a 1550 sq 3/2 on a 6300 sqft lot there’s a 1/1 ADU making it a 4/3 plus there is an office in the garage. Maybe actual living square footage is closer to 2k. It’s nice. It’s cute. It has a galley kitchen. Even if we throw in 300 square feet that’s probably not permitted, it’s still priced in the $1200/sqft range. Which is what they paid 13 months ago. And the average price/sqft in June was $865? Houston…we have a problem.

Let’s do some math. 20% down at 7% will set you back about $15k/month to live in this compound.

So you buy this with airbnb dreams and you rent out the 1 bedroom for a net of $12-14k/year. Now you have a side job cleaning your one bedroom apartment weekly and are still spending $13-$14k/month to live here. That’s some pretty ugly math.

Maybe I’m missing something. From my perspective, the math looks very, very, very bad.

Good luck and thanks reader #7 for the email.

$683/sqft on a 7,600 sqft lot – on a culdesace

720 W Oak came out with a bang. It’s nice, big, spiffed up and priced $200/sqft under the average.

As of mid June the average SFH price was $865/sqft. All of those listings are stale and even though a few houses (like 502 Richmond) have sold – most are languishing.

If you are new to class, I often refer to real estate pricing as monkey-see, monkey-do. House changes hands at $850 sqft that becomes the new price that real estate agents uses as their basis. There is no scientific research or economic basis. There is no special knowledge. If House A sold for that then my listing must be worth around the same. And they earn 3% for that bullshit! So far, none of the agents have wanted to have a come-to-jesus talk with their clients to tell them that the covid real estate prices are long gone. There’s talk of a bunch of sideline money waiting for rates to drop, but
1. that ain’t happening soon
2. These aren’t flyover-state prices

Charles Fisher has led with a price that seems fair and may be the match that starts a little fire. But then again it wasn’t sold off-market at this price. 720 W Oak. is a 3500 qft 5/4 on a 7600 sqft lot. listed at $2.4

Big isn’t always the answer but it’s been cleaned up, staged and shows well. It does have a few early 2000s touches but if you are in for $2.4 mil and have some time, you can afford to scrub that off. Just think, your property taxes will only be $2k/month…forever.

Even if it doesn’t set a new lower, low on price per square foot, it does shut down the fanciful listings in similar size that are priced at $700-$900/sqft.

One anecdotal piece of evidence is that 502 Richmond finally sold at $2.8 mil ($775/sqft). It took almost seven months and was originally listed at $3.4 mil. That’s a long time to finally take 18% less.