945 Sheldon St closes 23% below asking

That is the kind of news I want to hear. 945 Sheldon Street closed at $966K, 23% below it’s original listing price if $1.25 mil.

It’s a marginal home in a shitty location and $1.25 mil was crazy, but crazy prices haven’t dissuaded people from buying homes in town.

Who cares; a down round (even though it’s still sold at $809/sqft) is a good thing. Houses sitting for four months is a good thing. Sellers (that paid $375k 16 years ago) deciding that it’s better to accept an offer rather than let the process drag on for ever (754 Hillcrest) is a good thing.

Cross your fingers we see more of this kind of action and that we all read more stories of people selling their homes and taking second mortgages in order to buy bitcoin!

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Whachu gonna do now?

New listing at 633 California Street 90245. 4/2 1889 sqft on a 7060 sqft lot.

It’s updated, on a good street and at $741/sqft it’s not ridiculous, but who cares. It’s boring. I’m writing because of the home’s history. According to redfin the last time it changed hands was 21 years ago at $334,000!

Let’s pretend they refinanced at some point in the past 20 years. Let’s pretend that they financed $200k at 15 years. Their mortgage, including taxes and insurance is about $1600. That’s the price of a crappy one bedroom apartment in El Segundo.

WTF are they gonna do now?

There is no step-up to a nicer home because no matter how you look at it, the economics are bad. Why they aren’t renting it out for $5k/month is beyond me.

I hope they take their California pile of money and set up on a beautiful beach and retire like we all wish we could.

 

Bill Ruane’s September Stats

I got a door hanger from Bill Ruane today with the El Segundo Stats for September.

Median price for Sept 2017 w as $1.2 mil, 14% year over year.

Avg price per square foot: $686 up 47%!

Properties for sale – 26 vs 22 a year ago

Days on: 39 vs 53 a year ago

Month’s supply of inventory: vs 2.6 (yeah right)

Lack of supply is killing anyone that  wants to live in a small, niche market like El Segundo. There’s a ton of demand and very little supply. His 26 properties includes multi-family sales which for me is a deal breaker. The MLS says there are 14 single family homes available right now but I know at least two of the 14 are in escrow plus the BS listing at 754 Hillcrest (three years on market at/or around $1.5 mil) might as well  be taken off . I bumped into an acquaintance this morning that’s a big-time realtor in Hermosa and he said with all the tax shenanigans the phone is still ringing despite Xmas being around the corner.

 

Tax Bills, Bubble popping and WTF Bitcoin

I wish I could speak to the tax bill with any sort of knowledge but I can’t. I just know that the Golman Sachs bankers that wrote the tax bill for our elected officials will make sure that their ass is covered.  Dr Housing Bubble takes a stab at it.  Either way if you live in California please prepare to grab your ankles.

Wanna know what the next calamity will be? My bet is pensions. Jack Bogle shares my sentiment. Pensions are ponzi schemes that use ~7-8% expected returns when they do their planning because “over the long term the stock market returns…..”. That math works great until you have a down 20% year. Or even a couple of 3% years.  Just ask the state of Kentucky.

Bill Gross is making bubble talk. 

A month ago when I mentioned BitCoin it was at $7450 one month later it’s dabbling around $17,000. Yes up 134% in a month. Some say it’s the future of currency. Or is it just another canary in the coal mine?

 

 

Candy Cane Lane Adjacent

Another day, another overpriced mediocre home. This one is another Bill Ruane listing. I wonder how many weeks he’s had a sign parked out front.

1030 E Acacia Ave 90245 is a 1779sqft 2/2 priced at $1.3 mil. If you like the Getty Villa, you will love this time capsule. Looks like it was updated in the 90s and should be the set for a Zsa Zsa Gabor movie. Despite a 6000 ft lot the back yard is small but it does have a super fancy stamped concrete driveway.

The BS gig economy

I took an uber the other day and in our chat he mentioned he was a college student. He said the money driving was great and perfect for his schedule. He said he averaged about $25/hour.  For many people in our country $25/hour is a fair and livable wage. One might say that you could actually live in Los Angeles at that wage.

I asked if he ever accounted for the expenses he incurred to make that $25/hour? Fuel, car washes, tire, extra oil changes and maintenance?

He said not really. He said he was overdue for an oil change (in his late model Kia) and the last time he had the car in they mentioned he would need transmission work in the near future. He said he couldn’t afford either right now.

To the uneducated Uber/Lyft/Turo/AirBnB et all seem like great and easy money. But not many people are accounting for the costs or the risks. From what I’ve heard Uber and Lyft aren’t so forgiving when you get in an accident; they go so far as to make you unemployable until they can verify your car is repaired. Hmmm, you got into an accident with a company car and the company is penalizing you? There’s a reason the tax code mandates that an employee be paid about $0.54 per mile to use your car.  AirBnb guest damaged your home and insurance is fighting you? You rented your car out and they drove it like a rental and your insurance company now wants to drop you?

I bring this up after reading another article about the pains on living in SoCal.   This comes a few weeks after I caught part of a documentary on HBO about homelessness and kids in Orange County that live in motels.  This town is in a very bad place.

 

How sitting out for two years killed me

How does this end? How do all the financial imbalances correct themselves? How far will real estate prices in El Segundo correct? And for those of us that are sitting on the sidelines what we really care about is when will it make sense to buy a home in El Segundo?

In economic study we often look at history to guide us. Right or wrong we look to where we’ve been to help us predict what may come. Hence so many people are screaming Bubble! We have been here before in both the real estate market and stock market. This historical view used to give me comfort. I figured the current market would fall enough for it to make sense for us to buy a home.  From the peak in 2005 to the bottom in 2010 the average home price in El Segundo dropped ~20%.  I used to take this little grain of info and extrapolate – from the top of the bubble plus ~3-4 years would be a fair time to start to poke around. The following is the average price per square foot for single family homes in El Segundo.

Like all data sets based on averages this one has it’s issues. I figured price/sqft was a fair barometer but we know the small houses have a high price/sqft while the decent size homes have a 20% discount on price/sqft. Take it with a grain of salt.

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Since we sold our home in 2015 real estate prices have risen another 25%. Since 2010 when we bought our house the value of the home we sold has increased a mind boggling 75%! WTF?! I can also look to the only home in El Segundo we wrote an offer for.  In 2015 we wrote an offer for a home on Mariposa. Our offer was $975k and it sold for $995k. Today Refin estimates it at $1.25 mil and zillow at $1.3 mil. Regardless we are looking at about 25%. So if the bubble and conditions were the same and real estate dropped roughly 20% then this home will be down to $1 mil at the bottom. WTF? I didn’t think that home was worth $1mil two and a half years ago so where does that leave me? I’m screwed.

I can tell you that neither my wife or I have gotten 25% raises since 2015.  We thought Mariposa was only worth $975k in 2015 (I wasn’t a fan of the house and the offer was to appease my wife) It was a 3/2 1500 sqf home on a flag lot. It wasn’t special, had quirks and at the time we planned on keeping some money in our pockets for what would be some needed updates. So best case that home is back down to a mil after a horrible real estate crash?

So basically I am screwed.  Now I just need to convince my wife to leave the state.

“I Have Never Seen a Soft Landing”

Remember me?

Angelo Mozillo was the poster child of the last real estate debacle. Before the last collapse he said “in my 50 years in this business I have never seen a soft landing”. But this time will be different?

Mark Hanson is back with another very detailed analysis of the very bad things happening. 

Here’s some nuggets:

 

Yep, you read that correct a los angeles resident’s income would need to increase 122% in order to afford the MEDIAN priced home. Yes both figures are skewed in a large metropolis but what about SF at 107%? Denver 57%? This is the new normal?

Everything is Awesome!

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Another day, another new high in the stock market, another shrug of the shoulder in regards to North Korea and another (no bubble here) price set in Bitcoin!

That flip on Maple I mentioned hit the market with some fanfare. As if it’s going to push me off the fence I got additional emails from Zillow about 433 W Maple being a “hot home”. Just because people are sitting at home fantasizing about a shiny new house doesn’t mean that they will get off their couch to come see the house in person or make a bid. I drove by it this weekend during the open house and it looked like a ghost town. But then again who’s shopping for homes when they could be saving money shopping!

433 W Maple is 1500 sqft home on a 5000 sqft lot. Someone bought it for $920k five months ago and threw a coat of paint, some new laminate flooring and some granite counter and they are hoping to walk away with a 41% return! After costs they may walk with 25-30% but if you can make that in less than five months you do it. And you do it over and over and over again.  This is our market. And it takes only one fool to take the bait and set the new comp for the neighborhood.

To qualify someone needs to be making in the $250k/year neighborhood and have a quarter of a million US dollars for a down payment (and in theory another $125k in savings). All for the privilege of  writing a check for $6000 to live in a 1500 sqft home. Seems completely logical.

 

What is a bubble?

Definition: An asset bubble is when the price of an asset, such as housing, stocks or ​gold, become over-inflated. Prices rise quickly over a short period. They are not supported by an underlying demand for the product itself. It’s a bubble when investors bid up the price beyond any real sustainable value. These price spikes often occur when investors all flock to a particular asset class, such as the stock market, real estate or commodities.

Such a bubble is also called asset inflation.

Is Los Angeles real estate in a bubble? If we look at the definition let’s see if it fits the defined definition:

  1. Prices rise quickly over a short time? Yes. The data I found from the California Association of Realtors only goes back to 1990 but it shows that from 1990-1998ish home prices generally languished. You didn’t get rich from selling your home. You probably bought because it was cheaper or better to own, plus there’s a significant tax advantage.
  2. They are not supported by underlying demand? Demand means people are looking for a place to live. Not a home to flip, not a home to rent out, not a home to AirBnb.
  3. Have investors bid up the value beyond real sustainable value? Let me see a show of hands that really believe in their heart of hearts that the piece of shit tiny homes changing hands in El Segundo for one million US dollars are really worth a million dollars? Alex and Bill put your hands down!

existingsales

So what happened in the late 90s? Remember the tech bubble? You could throw a dart at the Nasdaq 100 and double your money. Cicso, Yahoo, Netscape, AOL…..You could do no wrong. People all of a sudden were making real money investing. None of this mamby-shmamby ~7% per year and be happy. They were doubling and tripling their money.  I know a guy who was the head of sales for Netscape when it went public. His life changed in a few hours. He never had to work an honest day in his life.

What do people do with excess money and the winnings they didn’t have to work 40 hours to attain? They spend it….which causes inflation. When too much demand is chasing the same goods, prices rise.  Now people are making money when they sell their home because their is a pool of people with a lot of extra money to spend. The seller takes their proceeds and buy a bigger home and the cycle continues. Then there’s a psychological factor. FOMO. The Fear Of Missing Out. Which attracts more buyers, it attracts investors, and flippers and new business models that have nothing to do with finding a home to raise your family in.

But this time it’s different! “Last time it was about phony mortgages and teaser loans”….But was it? A recent study by the National Bureau of Economic Research pointed to the fact that it wasn’t bad mortgages but flippers/investors that caused the subprime crisis. Because when you think about it, the crazy, easy mortgages was a business model aimed at capitalizing on the appetite of investors and in-turn the FOMO people.

If it walks like a duck, quacks like a duck….

How does it pop? How violent of a pop will it be? Will it hurt?  That remains to be seen. Grab your bucket of popcorn, sit back and watch. Keep an eye on the Bitcoin “investors”… I too participated in the bitcoin bonanza. I bought around $700 (yes and now it’s $7640) and sold at $300 because it was just a bet that was not paying off. I had no conviction that Bitcoin was an amazing investment opportunity. It was a bet that it would be worth more in the future than what I paid. Was I wrong? It doesn’t matter. I lost over 50% of my money in a short time frame and I cut my losses. Because it could have easily gone to $0.

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