A little slight of hand

Did you see it? If you weren’t paying attention you may have missed it.

1225 E Acacia took a 12% reduction.  They reduced from $2 mil to $1.9 after the first month and then delisted it and it magically reappeared today for $1.77 mil.  (it will be our little secret)

Here’s where we will see the willingness of people of means to buy a nice home in a crap location. Having lived on the north-east side of town I can attest that the level of noise is ever-present but different.  While the majority of town hears the planes takeoff,  Acacia hears every rev of every engine. And then there’s that little candy cane lane issue.

Not to be outdone. 911 Cedar St took another reduction, now down 12% from asking, to $1.425 mil.  Now down to the enviable $571/sqft for a nice home. The kicker is that the home was bought just four years ago for only $1.07 mil. There’s still meat on that bone. It’s been on market at least three months and there’s a lot of competition in the 2000-3000 sqft market right now.

Maybe there’s a revolt against living on candy cane lane because we now have 1225 and 1224 E Acacia listed. 1224 is 3600 4/4.5 listed for $1.99 mil. Again here we find ourselves at $559/sqft.    

Just another big showy house in a bad location. The allure of Candy Cane lane seems to have disappeared with the advent of social media. But hey, you get free electricity a couple months a year.

I had heard that the candy cane residents got subsidized electricity for couple months during the holidays. I was wrong. They do it out of the kindness of their hearts.

 

 

 

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El Segundo Rent delfation? Or Greed doesn’t pay.

Back in January 2017 I wrote about 533 Concord. I knew the previous renter at Concord and they paid $3500 for the 1500 sqft 3/3. The landlord figured he could take advantage of the rental shortage and the fervent demand on ESPN and he jacked the price to $5000.

Then it sat. El Segundo residents gave the owner and Kirk Brown the middle finger. It sat unrented for FOUR months. They finally started getting cold feet and lowered to $4700.

Low and behold it’s back for rent just fourteen months later for $4500. As expensive as that seems, $4500 is now the going, bend-over, El Segundo rental price.

But let’s take a step back to look and how being greedy comes with bad karma.

$3500/month raised to $5000 -+43% increase. Greedy DICKHEAD move.
Prep and conditioning costs – $500
Sits empty for four months -loss of $14,000 in income (at $3500/mo)
Rents for $4500 x 14 months – $63000 in revenue
Real estate agent commission (let’s pretend they took over property management too)  -$6300
Prep and conditioning costs 2018 – $500
Now they sit here a year and a half later with about $42k in income. Had they rented the home for $3500 it would have rented immediately for an extra $14k for the empty four months. At 10% commission/prop mgmt fee the cost stays the same at $6300. Eighteen months later they would have $56k in income (an extra $14k) and have a tenant that is willing to stay put and probably more willing to take care of the home to help guarantee that they keep their reasonable rent.  Happy tenant, owner makes more money. Everybody wins.

In this case I’m glad that simple economics have cost this greedy landlord money. I hope it’s a lesson to him and all the other property owners that raping your tenant isn’t the best course of action if you want a long-term tenant that will take care of your property.

 

Lots of summer inventory in the Deuce

A cursory glance at redfin says there are 35 properties and 20 SFH for sale currently in El Segundo. That’s a lot of inventory. The bummer is of the 20 only ONE is priced under a mil. It’s also a puzzling listing because 861 Sheldon is not only under a mil it’s priced at $621/sqft for a 1600 sqft spanish home. There are only two listing photos which speaks for itself, but anyone with an extra $75-$100k and a few months could a decent sized home for a decent price. I just noticed it’s an Abad listing which leads me to believe there are more than cosmetic issues. Abad doesn’t know reasonable pricing. Abad doesn’t price homes favorably for his future neighbors. He likes to ring the bell with the highest price and be damned of who he’s ripping off. Anyone see Sheldon and know what’s wrong with it?

The rest of the 20 homes for sale are priced at $1.3 mil or higher. In real world terms that is a household making $300k or better. And let’s be honest, If you are making $300k and spending $8k/month (40% of after tax income) on housing costs you are stretching it. Not to mention how does someone in Los Angeles making $300k save a quarter million bucks for the down?

So if you are making over $300k/year have a nice nest egg, some stock options or are willing to gamble with mom and dad’s retirement money we have some homes for you!

 

El Segundo McMansion sale

We know that inventory is one of the main problems we are having with housing and I wonder if the McMansion sale we are having in town is a sign of things to come.

Let’s face it, If you paid $600-$700k for a SFH in El Segundo you only have a couple options:

  1. Take your California gains and start a new life in a part of the country where a couple hundred grand is life changing. We all know how impossible this is. Let’s pretend the weather isn’t always perfect in SoCal; no one wants to start over. No one wants to disrupt their kid’s lives. Lastly you either move to where your new job is (hard to look for jobs out of your immediate area) or you move to where family is.
  2. Tap into that equity and remodel/expand. This is another painful option. You bought that 1000 sqft home with hopes of expanding only to find out that it’s $450/sqft to expand and will take 6 months and make your life a living hell?  But you can’t afford to sell and step up because nothing is affordable, interest rates are a point higher than when you bought and your property tax bill will DOUBLE.
  3. Stay put. Sit on your paper nest egg and just pray that you can hold onto it.

Options two and three do not provide inventory or you and me. For the working class folk  making a paltry $100-$200k you are left with ridiculous prices on “normal” family homes, increasing rents and the McMansionization of El Segundo.  Well, that may be an overstatement since our city does make an effort to maintain building guidelines but what we see today is that of the 18 homes listed on Redfin, 11 of them are over $1.55 mil.

What we have is a market geared towards households making about a half a mil a year. And people making that kind of money have options. Think they want to buy that well-appointed modern at the end of Candy Cane Lane for $1.9 mil? Listening to the sounds of airplanes revving up 24/7 and having thousands of tourists visit your street for a month every year?  Sounds awesome! Here’s my check for $15k every month!

This is not normal economic behavior. This is a market that is so far out of equilibrium that all of this crazy bullshit looks normal.

 

 

Boom or Bust?

Last week made me laugh. Early on we had Jamie Dimon, the CEO of JP Morgan Chase and Warren Buffet professing the strength of the US economy and that in regards to bull runs we are in the 6th or 7th inning with our sluggers at bat.  The economy is solid and there is still legs in this market. Great!!!Go forth and borrow money!

But wait….A few days later we had Ben Bernake, the former Federal Reserve chairman saying that by 2020 the economy will have it’s Wiley Coyote moment and fall off a cliff.

No one seems to know WTF or when TF. The Scary thing is that if I were to believe one of these two groups I would believe one of the most connected men in the financial world, Dimon. He knows where the bodies are buried and I’m sure has a read on who’s buying shovels.  Bernake will go down in history as one of the causes of the issues we are in today.

So flip a coin to decide if buying $900/sqft home is right for you.

I’ll leave you with this chart from our friends at BofA Merrill Lynch. We’ve seen this movie before.

bubble trouble 2

 

Signs, signs everywhere a sign

The headlines and stories I read every day continue to frighten me. Whether it’s Trump saying he can pardon himself, retaliatory trade war measures, oil prices, global and US debt, rising interest rates, drug epidemic, ultra low employment, Italy, Spain, Turkey, Iran, North Korea……

Yet the machines controlling the stock market continue to  ignore all of these potentially catastrophic issues.  Some blame the millennials as they have never seen a real bear market. Some blame the algorithms and machines that are running today’s stock market.  Who knows but from my POV this is all scary shit. Tin-foil hat or not, we have become immune to news and headlines.

Today’s headline comes from a fellow tin-foil hat wearer, a guy that runs one of the largest hedge funds in the world.

https://www.forexlive.com/news/!/bridgewater-gets-bearish-20180605

From co-CIO Greg Jensen:

“Markets are already vulnerable, as the Fed is pulling back liquidity and raising rates, making cash scarcer and more attractive – reversing the easy liquidity and 0% cash rate that helped push money out of the risk curve over the course of the expansion. The danger to assets from the shift in liquidity and the building late-cycle dynamics is compounded by the fact that financial assets are pricing in a Goldilocks scenario of sustained strength, with little chance of either a slump or an overheating as the Fed continues its tightening cycle over the next year and a half.”

He adds that they are bearish on financial assets.

In a similar article:

Bridgewater urges investors to get real

WTF on Eucalyptus

I’ve always wondered what that derelict construction site was. Now I know. According to the listing:

928 Eucalyptus is an Abandoned Single Family Development. Development has been abandoned for 2-3+ years. Seller does not have copies of plans or permits.

The listing also has a bunch of caveats about not going in without signing your life away and buyer to verify everything….So if you have a lawyer, some time on your hands and want a nice view of LAX Then maybe this project is for you for the low, low price of $1.55 mil. Which is $174/sqft for the land. Seems a bit steep. Someone just paid $146/sqft for 632 W Maple and it has a livable 1700 sqft house on a smilar sized lot. I’m sure 632 W Maple didn’t require $40k in expenses just for due diligence.  I imagine without plans most builders will suggest knocking it down and starting over.

We’ll see what kind of ballsy investor jumps in. My guess it can be had for about $1.2 mil and we need another awesome McMansion in town.  I hope the future occupant (in two years) loves airplanes.

If you must buy a home in El Segundo

All of the construction in town has me zig-zagging through streets and parts of town I rarely venture. As usual what I see is unlisted inventory with for sale signs by the local cabal of realtors. El Segundo is a bubble within a bubble. If you must buy a house in town, the only reasonable thing to do is use a local El Segundo real estate agent. In addition to knowing the local market, the cabal of local agents have personal relationships with people and know what’s secretly available, who’s thinking about selling and who could be motivated for the right price.  If you are a chump sitting at home using zillow hoping to score a deal you will lose every time.

I still think the prices are out of control. Unless you are buying in the $600-$700/sqft range you are paying too much. Ideally there are deals and historical averages that say you should be paying $550/sqft.

Can you afford to lose 20-30% in value? Is your job that secure that if there is a downturn your income and security will remain the same?

The one thing that continues to baffle me is the if we build it they will come mentality of commercial real estate. El Segundo currently has tens, if not hundreds of thousands of square feet of empty commercial space. Despite the glut there is more and more development coming online. How long can and will these banks finance projects that continue to remain empty?  When will one of these developments throw in the towel and lower prices? In the mean time there are fantasies of turning our little bubble into the next silicon beach. It will probably work and in 10-15 years El Segundo will have a very different feel if they manage to get bodies into all of this commercial space.

Bubble 2.0 Mark Hanson

House Prices; BUBBLE 2.0, OR NOT, It’s time to Lever-Up the Sector…Again

https://www.mhanson.com/5-31-18-hanson-house-prices-bubble-2-0-or-not-its-time-to-lever-up-the-sector-again/

This week’s Case Shiller revealed prices in the 20 rose at the fastest pace since ’14. Further, ALL 20 major regions showed gains with Seattle up 13%, Vegas 12% and SF 11%yy.

This is so out of scope relative to income & the direction of rates the only comp is 2002-07.

…With refi vol at 18-yr lows, prices soaring like it’s 2004 again, rates rising (also like 04 again), wages lagging, the avg down payment less than 6%, and all big donation housing / lending lobbies interested in keeping house prices and volume heading north in perpetuity, something will be done to increase “affordability” across the board; first timers, repeat buyers, investors and refinancers.

More tin-foil hat speculation?

Housing Bubble Pathologies Start to Bite – Yet Another Sign the Cycle Has Peaked

https://www.dollarcollapse.com/housing-bubble-pathologies-cycle-peaked/

There’s a limit, in other words, to the ascent of home prices beyond which the system starts to break down. And when the people who make a town run smoothly – teachers, firefighters, cops, sanitation workers – can no longer afford to live there, that town has clearly crossed the line.