The vultures have begun to circle

Vultures may be a strong term but the reality is that in every financial transaction their are parties who’s sole job is to capitalize on distress and reap huge rewards. It goes back to the “life is not fair” post. Life isn’t fair. Those with capital have a huge advantage.

If you haven’t seen the headlines; between Houston and Florida and all the other areas destroyed by flooding and hurricanes there are billions of dollars in mortgages that are about to go south. Just imagine you dropped 20% of $300k. You don’t have flood insurance and your insurance does not cover damage from rising water. Your home is virtually destroyed as are it’s contents. It will take $200k to repair and fill it with stuff and FEMA wants to give you $20k. Do you take out a loan for $180k? Or do you hand the bank the keys and walk away? There will be countless mortgage holders that chose the latter option.

Flood, fix and flip: Houston housing investors see profit in Harvey’s wake

https://www.reuters.com/article/us-storm-harvey-housing-investors/flood-fix-and-flip-houston-housing-investors-see-profit-in-harveys-wake-idUSKCN1BX0DA

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649 W Oak St 90245

$572/square foot!

649 W Oak St. is a nice, large 4/3.5 on a big lot priced at $572/sqft. At $1.65 mil it’s out of reach for a lot of buyers but it goes to show how much things change when the demand equation is tighter.

You’ve got first time buyers, renters and average shmoes trying to get in around $1.1-$1.3 mil but with just a bit more income (like 30%) or an extra couple hundred grand you start seeing prices that you can sit back and just watch the market swing up and down without a concern.

So cheers to Mathew Thomas Janes for pricing a nice home that someone would want to live in at a price that will get people off their computer and into an open house.

With this listing he just slammed the door shut on a couple of other grossly overpriced listings in the $1.6 mil range. If this house sells for $572/sqft he just took the legs out of the higher priced listing with a new comp that buyers will be using.

Darren Pujalet is back at it

I’m not sure if Darren is just the listing agent or is involved in the flipping but for the love of god why do these people hate windows so much?

I first came across Darren’s name after seeing his mug pasted on a construction fence for 754 Virgina St.  That ugly box was flipped and sold for $1.7 mil last year.

On a recent drive on Whiting I noticed a similar looking home (ugly with no windows) under construction. It had Darren’s writing all over it and sure enough it now has a for sale sign on it for none other than Darren Pujalet.

Originally purchased for $800k in October 2015 this 1000 square foot home is on an R3 lot and it’s now a 5/4 monstrosity on a corner lot with hundreds of neighbors since it’s surrounded by apartment buildings. I can’t tell if it’s being sold as individual townhomes or one big ugly home. Time will tell. Here’s the before….

istww73me4339c0000000000

Here’s the design drawing for the after…Just think of all the money they saved by hiring a recent architectural graduate and not using many windows! Natural light….so over rated.  Barn living at it’s finest! They much watch one of those HGTV shows based in Texas. Bet it has a farm sink.

whiting-ext-2

Time will tell what this delight will list and sell for. Maybe it’s an AirBnb paradise. A little hostel next to your main family home. The future of “affordable housing”. Can’t really afford to own, buy something with income potential. Can’t afford your car payment, rent out your car on Turo a few weeks a month.

Some light reading

Most Californians Have Considered Moving

http://www.laweekly.com/news/a-majority-of-californians-have-considered-moving-over-housing-costs-8667768

Don’t act like you’ve never thought about it. We’ve got enough money in the bank to start a super-duper new life in many states…..alas my vote gets trumped by a wife that was born and raised here.

L.A.’s Housing Crisis Is Now the Nation’s Housing Crisis

A report in July found that it would take $109,543 in annual income — a figure that makes its earners part of the top one-fifth of income earners in the United States — to secure an “average” ($2,556 per month) two-bedroom apartment in Los Angeles.

renter-data-los-angeles

http://nationalequityatlas.org/sites/default/files/LosAngeles-Fact-Sheet.pdf

No Joke: 97 Million Full-Time Workers Are Now Living Paycheck to Paycheck

https://www.msn.com/en-us/money/personalfinance/no-joke-97-million-full-time-workers-are-now-living-paycheck-to-paycheck/ar-AArffO6

study from GoBankingRates, conducted last year, found that 69% of the Americans it surveyed had less than $1,000 in savings, including about a third of respondents who had a big goose egg — $0.

…According to the latest survey, conducted on CareerBuilder’s behalf by Harris Poll, 78% of U.S. full-time workers are now living paycheck to paycheck, up from 75% in 2016, to make ends meet.

If it looks like a duck and walks like a duck…

What is a bubble?

An economic bubble or asset bubble (sometimes also referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, a speculative mania, or a balloon) is trade in an asset at a price or price range that strongly exceeds the asset’s intrinsic value.

So what’s the true value of a 1000 square foot house in El Segundo? Is it really worth $1 million? Is it really for a buyer that requires an income of nearly $200,000? A similar home rents for about $3500. PMIT is about $4800 after your drop $200k. Is that really the norm for every area of Los Angeles that is marginally inhabitable? West LA, Long beach, Korea Town, Echo Park, Silverlake?

Speculation has caused our current predicament.  The idea that real estate is a store of wealth as well as a safe and ever-increasing asset is wrong.

A home is a shelter.  For someone to go into that large of a financial transaction thinking anything different is wrong.

edit: I walked away thinking that I said the wrong thing. Yes, a home is a shelter, and a store of wealth to a degree (ask the Chinese nationals about that one), and it has proven a way to grow wealth but to enter into a transaction for a home you know in your heart is shitty and overpriced because some day it will be worth more is a very dangerous thought process. Save your life-changing down payment and rent. You’ll know when it’s time to step in.

This veteran investor nailed the last housing bubble and now expects another

http://www.marketwatch.com/story/this-veteran-investor-nailed-the-last-housing-bubble-and-now-expects-another-2017-09-15

“Median family home prices are 32% above the long-term inflationary trend — in other words it has to fall 32% to get down to where it was,” Stack explained. “That’s not as bad as the 35% in 2005, but it does kind of wake you up and say, this isn’t normal, this is going to end badly.” To me, there isn’t much difference between being 32% and 35% overvalued.

Life is not fair

My son likes to tell me when something isn’t fair. Some day he will learn the cold hard truth that life will never be fair. El Segundo real estate is also not fair. This is a small town with high demand filled with people that are one degree of separation away from every resident in town. There’s a cabal of local agents, there are bro-deals, back-room deals, shady real estate agents acting as developers and A LOT of houses that are changing hands that you and I will never get a chance to participate in.

When updated my data set I needed the past 12 months worth of sales. The thing with Redfin is that the data shows a big ole blank for the sale date when one of these off-market homes changes hands. Because a sale is public record, as long as enough time has passed, I can always find the most recent date and price of the sale.

Since September 2016 there have been 91 single family homes that have changed hands. (Like I mentioned before this data is unscientific and from a sourced from the internet. Believe what you will.) Of those 91 sales 17 were made off market. Homes that were sold without a listing or open house. That’s 19% of the inventory of El Segundo that is NOT being offered to the general public.  Consider all the crappy houses that are being offered up for sale and imagine having another house or two to compare against?

Welcome to El Segundo.

$1000 per square foot in El Segundo

When I was actively searching to buy a home in El Segundo I dug deep into the historical sales. I wanted to know if I bought a home near the “top of the bubble” (this was summer 2015) what was my potential downside. For me buying a home that fit our family needs at a fair price, and at a monthly cost I could afford even if the economy went sideways was a no-lose proposition, even if the value of that home dropped 20-30%. Come hell or high-water it’s El Segundo or bust for my family (blame my wife). So I’m not going to die if the “value” of my home drops assuming I’m here for another 15-30 years so what does it matter as long as my monthly cash flow figure stays within my comfort zone?

I stopped tracking this data after I threw in the towel on our search to buy but it helps to take a look at history. The data set is probably shit. It’s from Redfin, hardly scientific and because Redfin changed the format of the data I had to look up and input some of the data by hand. The data is only based on single family homes sold in El Segundo.

Averages are an ugly number to look at. For example, 225 W Sycamore 90245 sold for $80,000 in June 2017. Yes, no misprint, $80k. You didn’t get an invite to the broker’s open either? But we all know that was shady tax avoidance flipping strategy. But when you throw a number like that into the mix it skews things quite a bit. I also tend to look at price per square foot which isn’t an apples to apples comparison. A bigger house typically goes for a lower price per square foot. Tiny 1000sqft homes are going for $1000/sqft while homes for people that don’t want to co-sleep with teenagers are in the $600/sqft range.

I looked at this data to get an idea where I wanted to pay for a home as well as the potential downside. If you are buying at the top of the market, and over-extending yourself on a cash flow basis there’s a potential for a financial disaster.

Price per square foot.  In 2004 El Segundo was at an average of $420/sqft. At the peak in 2006 it bumped up to $565, a 35% increase in four years. From peak to trough in 2010 back down to $455/sqft down -19%.  But then it gets crazy. 5-17% increases in price per square foot per year bring us to today’s bat-shit crazy $727/sqft up 73% since 2004.  And today you have people chasing homes priced at $1000/sqft. That’s 38% over the average!

Bubble? What bubble? $1000/square foot is totally reasonable. “They’re not making any more land west of Sepulveda”

90245psqft

90245historical

What is the ‘Mean Reversion’

Mean reversion is the theory suggesting that prices and returns eventually move back toward the mean or average. This mean or average can be the historical average of the price or return, or another relevant average such as the growth in the economy or the average return of an industry

 

 

 

 

For Sale by Owner Part II

You have to love El Segundo. I may have followed the breadcrumbs to the owner of the For Sale By Owner House but one of my 7 readers knows exactly which house and what the seller paid:

Comment : Regarding FSBO house………paid $805k 9/30/16. 60% return on a house in 1 year…..sure, that makes sense!

I wish I could stumble on single family homes or any size or condition in the $800s!

But knowledge is power so go take this nugget of info and offer them $950k.  Drop $250k and make it a home worth living in.

Listing updates for El Segundo

I don’t remember writing about 1538 E Elm before but it fell out and is back on market. $1022/sqft for a 1150sqft 2/2. Good luck with that. There are similar homes for rent around $3500. Does spending $5500/month in PMIT for the same house really justify dropping $240K so you can get a $25k write-off on your taxes? If you think that makes sense you should buy it.

The two tiny homes at 604 E Palm Ave and 940 Virginia St. now show as pending. Both are right around $1 mil for 1000 sqft homes.   Golf clap for all the people going all in at $1000 sqft homes. Bubble? nahh

676 Palm sold for $1.49 mil. A 2044 sqft  4/3 built in 2005! The sale price was $720/sqft.