Million dollar tiny homes. The ante is a million.

Ante is one million dollars. Are you in? Better not miss out!

I’m screwed. Hawthorne here I come!

632 W Maple is a developers dream with an 8200 sqft lot and a 1600 sqft home. Someone paid $1.2 mil or $756/sqft. 

686 W Palm closed at $910K. $892/sqft for a pint sized 1020 sqft house on a 5594 sqft lot on a street that can’t be found with some random HOA fees. 

308 E Maple Closed at $1.08 mil. $942/sqft for this spanish home on a tiny 3000 sqft lot.  Listed as 1146 sqft but there’s a “bonus” room with bath downstairs in the basement.

In addition to these closes a lot of the other homes on Maple and W Sycamore are now in escrow.  There’s also a handful of “coming soon” signs in town.

This gem popped up today but its’ no longer listed for sale on redfin. Maybe someone hit the buy it now button? Listed as a 1689 sqft this charmer is priced at or near $980k.   Zillow shows a little more detail and calls it a foreclosure headed for auction.

I wonder what kind of critters live in that awesome growth? You can tell all your friends you have one of the only green, living walls in town!

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Wage growth vs Prices

Case-Shiller reports increase in home price growth

Experts say rising home prices won’t stop anytime soon

https://www.housingwire.com/articles/43182-case-shiller-reports-increase-in-home-price-growth

“The S&P CoreLogic Case-Shiller National Index is up 6.3% in the 12 months through February 2018. Year-over-year prices measured by the National index have increased continuously for the past 70 months, since May 2012.”

“Over that time, the price increases averaged 6% per year,” Blitzer said. “This run, which is still ongoing, compares to the previous long run from January 1992 to February 2007, 182 months, when prices averaged 6.1% annually. With expectations for continued economic growth and further employment gains, the current run of rising prices is likely to continue.”

There is no let-up to rising home prices,” said Lawrence Yun, National Association of Realtors chief economist. “The Case-Shiller Index and National Association of Realtors median home price both show gains of roughly double the average wage growth.”

So go buy a home. It’s completely logical for someone to spend 40-50% of their after tax income for a place to live. Maybe you should go lease that 7-series BMW too? Maybe your an Escalade person? Tesla model X?

Home Prices are on an epic run

Home prices are on an epic run

http://money.cnn.com/2018/04/24/real_estate/home-prices-rise-case-shiller/index.html

Home sellers are partying like it’s 2006.

Real estate prices posted an annual gain of 6.3% in February, according to the latest S&P CoreLogic Case-Shiller Indices.

Home buyers in Seattle, Las Vegas and San Francisco are facing the biggest gains. Seattle prices rose the most with a 12.7% year-over-year price increase, while Las Vegas prices jumped 11.6%.

You got a 10% raise last year right?

 

The plight of the middle class in SoCal

Last week’s post on ESPN talked about the plight of a family of five living on a six figure salary in El Segundo. The fear of ever increasing rent, the low supply of available homes (even for rent) and the ramifications of getting a 60 day notice to vacate.

This is the struggle of many families all over Southern and Northern California. The cost of living is so high that even making $100k means just getting by. This is why we will continue to see an exodus of people, talent and companies from California. At some point the stress and fear no longer make sense.

The hard truth is that if a family has an income of $100k they have options. They either have a marketable skill,  education or are a successful entrepreneur.  All of those traits work just as well in affordable cities like Vegas, Phoenix, Dallas…

I have lived in different states and know that there is life outside of Socal. Yes the weather here is great but is it really worth the penalty that’s associated with the geography? Unaffordable housing,  horrendous commutes, over population? Yes it’s hard to move away from family and friends. Yes it’s hard to apply for jobs out of state….But it’s also hard making $6k after taxes ($100k salary) and spending $3k on rent. It’s hard needing to allocate 60 minutes to drive 20 miles.

For those of us that can’t and won’t leave SoCal how do you deal with the stress and fear of always being priced out?

Ask for multi-year leases. If you are a family renting in El Segundo there is no reason you shouldn’t be signing multi-year leases.  You are locking in a rate, ensuring that you have rights and can sleep better at night knowing they can’t just boot you out in 60 days. It’s a win-win for both parties and many may offer you a discount on the rent.

 Re-up your lease. There is no reason you can’t ask to re-up your lease. Being on month to month is convenient for you if you need to leave but if you plan to stay the loss of renter rights is too risky. A lease offers protection. Month-to-month is not for families unless they have plans to buy or move.

Move.  Yes El Segundo is great but the reality is that there are dozens of other LA-based cities that offer a good quality of life and good schools.  The “but it’s not by the beach” logic is lame. How often do you really go to the beach? Yes it’s 20-30 degrees hotter in Burbank but they have great schools, great community services and the homes are 20-30% cheaper than El Segundo. Many locals lambaste Hawthorne but Hollyglen and Del Aire are right next door, have good schools and are 15-25% cheaper.

Permit your kids back in to ESUSD. If you have to move out of the area there are some provisions that allow you to keep your kids in school here. What are the ramifications of commuting your kids in and out of El Segundo five days a week? But if you are here for the schools you have some options.  If you think you can pull the “I’ll use a friend’s address” scam I’d think again. Go through the channels.

I’m with you, the amount I pay to rent in El Segundo makes most people choke. I fear I may never be able to buy a home in El Segundo. But I also know that I will survive in a life outside of El Segundo if I have to move. If the economic stress of being in El Segundo is too much I have options. The options may not be fun and would introduce a new kind of stress into our lives but I have options.

 

A ninth grade lesson in economics

I devoured all 181 comments on the El Segundo Parents network about why we can’t/shouldn’t/don’t we have residential housing East of Sepulveda.

The original post talked about the disparity of renters (60%) vs owners, prices of real estate and the struggles of six-figure-income middle class families in El Segundo. Her post insinuated that adding more housing would change the pricing of real estate.

Although the sentiment is right, unfortunately building homes East of Sepulveda is unlikely to move the price needle much. Especially when you consider that those homes wouldn’t come online for 36-48 months.  At the current ~7%/year increase in prices our current, crappy 1000 sqft homes could be priced at $$1200-$1300/sqft by that time. Is it logical for the new east-side homes to be priced at less than market value?

Supply & Demand: In classical economic theory, the relationship between these two factors determines the price of an asset. This relationship is thought to be the driving force in a free market. As demand for an item increases prices rise.

In laymen terms as long as demand for El Segundo real estate is high (substitute any SoCal town name with good schools) then prices will rise. Eventually there comes a point where prices get too high and demand drops off. Because of the very limited supply of homes in El Segundo prices remain high. It only takes a handful of people to keep demand alive.

Like the OPs comments insinuated, supply should effect the supply/demand relationship. If you increase supply then the demand is satisfied and prices fall. The problem is that there is not enough available real estate in the area to budge the supply in a meaningful way. Increasing supply will also draw new demand from people that are not already prospective buyers.  The DR Horton development will show that the 58 new single family and townhomes, which will be priced at market value, won’t move the equation enough for it to make a difference. They will be just as expensive or more expensive than the current offerings.

According to redfin there are only 18 two bedroom or larger single and multifamily homes for sale right now. Are there more than 18 families looking to buy a home in El Segundo? Want three bedrooms? The number goes down to 14. Don’t want to live in a condo, now there’s only 8 homes available to buy.  How many families do you know that have talked about a desire to buy in El Segundo? Now think about all the families you don’t know.  Demand will always be high and supply is low.

The only thing that can materially move the needle is a natural disaster or an economic one.  Pick your poison.

The secret is out?

I’m sure the latest LA Times article about El Segundo will get lots of chatter.

 

http://www.latimes.com/local/abcarian/la-me-abcarian-el-segundo-20180417-story.html

To us locals there’s nothing riveting or newsworthy in the article. El Segundo is a great little town and has been somewhat off the radar for a number of reasons. But being off the radar in Los Angeles is the same as me not knowing the best place to get dim sum in San Marino. It’s there, I’ve heard about it and it only takes me a phone call or a few clicks to find info.

There are no secrets in Los Angeles.

I like the poo-bubble story, that’s a new one for me and what isn’t mentioned is the real reason why most residents do not want housing east of Sepulveda – Schools and tax revenue.

As one ESPN parent put it so eloquently (I’m paraphrasing)

The real reason the tax revenue from businesses East of Sepulevda goes to Wiseburn is because our racist El Segundo forefathers gave it away keep the children of farmers east of Sepulveda

The El Segundo natives didn’t want the farmer’s children that lived and worked the farms east Sepulveda to come to our schools. Now decades later we are screwed because all of that tax revenue supports the Wiseburn school district. Which becomes sticky in regards to bonds and elections. Do people really care if the east sider’s have their own easter egg hunt???? Nope we care how they vote in regards to bond measures and elections.

Anyway, let’s welcome our new neighbors the LA Times.

801 Maryland St for $1066/sqft

801 Maryland is one of the for-sale homes I noticed on my field trip down Maple. It’s also a house that makes me think WTF every time I drove by.

Over the past few months someone has gone through considerable expense to tier the front yard. Despite the colorful copy that says the 7788 sqft lot is great for “ambitious new owners” what they aren’t saying is how utterly USELESS this square footage is. In order to take advantage of the giant lot you need to start with a bulldozer. The copy should read It’s a 1200 sqft house with a pool and giant front yard. A Perfect place to showcase your real or artificial grass.

So for the time being Alex Abad is selling this dream for the kick in the teeth price of $1066/square foot.

Here’s a little before and after. Why in gods name did they turn the front yard into a tiered wedding cake instead of just leaving well enough (crappy) alone.  What value was added? Let’s add layers but not grass?

801maryland

Just think how much better your front yard is that your kid can now fall off two different levels! And after you spend your $1.25 million you can contact a landscape contractor to install sprinklers and the grass of your choice!

Don’t let the pretty staging fool you because if you are a sleepwalker you may just fall out of your bedroom (king size beds not allowed) directly into your pool. Or better yet maybe the kids can use the bed as a diving board?

And let’s not forget that lovely walk around your heated pool…..EVERY TIME you park in the garage and walk groceries in. Yes my dear reader, that isn’t some fancy pool house, that’s the garage.

I just can’t help myself. There’s too much stupidity in the real estate and construction businesses to not call them out.

$1.25 is a bargain, go and get it.

This should keep you up at night

Pensions will be one of the next big debacles.  As long as people can game the retirement system they will. As long as they can kick the can to future participants no one cares. Eventually the house of cards will collapse. We’ve seen it across the country in small numbers. This issue was also recently pointed out in this daily breeze article. 

These 3 South Bay cities rank in the top 10 for the number of retired workers making $100K or more

For example, the 237 Torrance retirees and 97 Redondo Beach retirees who receive more than $100,000 annually account for 44 percent of the entire amount the two cities pay in retirement benefits. And that trio of South Bay cities trail only El Segundo (46 percent). 

46% of El Segundo’s ENTIRE pension expense goes to the pensioners making $100k/year. 

 

A $76,000 Monthly Pension: Why
States and Cities Are Short on Cash

Governments are struggling as mounting pension obligations crowd
out the rest of their budgets. Oregon faces a severe, self-inflicted crisis.

Blog fatigue

Work has had me underwater and in all honesty I’m getting blog fatigue.

I’ve been writing about El Segundo real estate for 19 months. My posts are sounding sound like a broken record.

  • overpriced – crappy home
  • overpriced small home
  • it only takes one fool

Even my wife hit me up with a little FOMO (Fear Of Missing Out). She noticed the  amount of for sale signs on Maple and asked if we were making a mistake continuing to rent? I took a little field trip and from Sepulveda to the sand dunes there are 12 visible signs. Some are off Maple, some have been sold, some are in escrow, one is a construction site for a future Ruane McMansion but that’s a lot of action.

I continue to believe that sitting this one out is in our best interest. With the sale of our last home we made a sizable amount of money (bought 2010 sold 2015). We got lucky. Despite my proclivity to be aggressive with my investments in the stock market I can’t risk the proceeds from the sale. I wouldn’t be able to live with myself if lost that much money.  I might not get so lucky the next time I buy.

In our price range any home under $1.5 mil will be a downgrade from the house we rent. It’s gonna be older, or not as nice, or smaller. The logic of risking $300k for a $22k writeoff is dumb. The math is bad.

One of the first homes I wrote about in September 2016 was 818 Penn St. It is your typical tiny, 1057 sqft 2/1 on a 5457 lot. It is on an R2 lot which adds some value. It was listed for $1.05 mil and sold for $1.0 mil. Redfin estimates the value is now $1.15 mil. I’d agree and venture that if it’s in the same condition it could probably list closer to $1.2 mil. Regardless this owner is up 15-20% in 15 months! They are looking and feeling secure. They can take a 20% drop in value and still feel safe knowing that even after a 20% hit they are in basically the same place they started 15 months ago. Assuming no changes to their job they can sit back and ride it out.

For me, if I see a 20% drop in prices I am still looking at prices that are ludicrous. That tiny little house on Penn goes back to $1 mil which is still $1000/square feet.

Rock…Hard place…..

For now all I can do is continue with my plan to rent until the math is closer to making sense. God knows I cannot, nor want to live in 1057 sqft home with three other humans.

 

El Segundo RFI

I got an email from someone that was looking to move into town.

I’m a little skeptical about the city… Compared to Redondo Beach, which is more desirable as far as family and school? I’m concerned about the plane noise level and the type of neighbors living here.

I really do love El Segundo. Despite the witch hunt on ESPN that blasted me as an El Segundo Hater or potentially someone that doesn’t even live in town (heaven forbid). I live here and my life is here. We have long standing ties to the city. I voted.

But this town is not for everyone. El Segundo is the epitome of small town. For Los Angeles residents that may have never lived out of SoCal they may not have a concept of what I mean by small town. They may not know what they are signing up for.

I know my neighbors. My neighbors know me. I am 2-3 degrees away from every resident in this town. If your kid is caught doing something stupid in town (remember the prom king that got busted for armed robbery?) the town will probably gossip about it.   To some, this type of “meddling”, close relationships and gossip would be tortuous. I had a friend that grew up in LA visit Texas; he came back from his trip complaining that everyone wanted to say Hi and make small talk. To him that was intrusive, to a Texan that’s probably just southern hospitality.  So when I say this is a small town, rest assured this is like a small town in Texas, or Ohio, or Missouri. El Segundo is NOT like other towns within Los Angeles.

IMHO, for families this is the perfect situation for raising kids. I want my neighbors to tell me or call my kid out for being stupid. I want the security of knowing that I’ve met my kid’s friends parents either at school or through sports or just socializing with other residents. I like caring enough about the city that I actually vote for City Council members. I like having a stake.

The residents are great. I’ve got blue collar, white collar and retired neighbors. But get on the wrong side of some of these lovely neighbors and you may be on the receiving end of some ugly gossip.

Noise – yeah it’s bad. Pollution, mmm Probably. How much worse is El Segundo when compared to Manhattan (also Chevron adjacent), Torrance (refineries), Playa del Rey (LAX adjacent).  Is it worse than Redondo, yes but not in a way I could quantify.

El Segundo compared to Redondo? To me that’s apples to oranges. Redondo is nice, has more beach access and beach front property. Despite being on the water El Segundo does not have beach front property;  the closest house to the beach is about a third of a mile. Redondo, environmentally, is a nicer city. Has great schools and on a per square footage basis the home prices are about the same.  There is a lot more development in Redondo and the city doesn’t seem to put a stop to the McMansionization. The vibe in Redondo is changing. If you don’t like keeping up with the Jones’, you might want to skip Redondo. I’d venture that there are less blue collar and less retirees. Redondo does not have the same sense of community. So if you want to know some of your neighbors but not all, if you want to avoid that jack-ass dad that coached your daughter last year, then Redondo could be a better fit.  Redondo comes with a commute penalty of 20-40 minutes. Pick the wrong time of day and it could cost you 40 minutes just to get to a major freeway.

My suggestion to this person and anyone considering moving to the area is to rent before you buy. Especially in El Segundo. A lot of the negatives I talk about (noise and pollution) need to be experienced first hand. The party line is “you’ll get used to it” but when spending over a million bucks do you really want to have to get used to it?