Taking bets on 433 W Maple

Every time I passed by 433 W Maple I wanted to make a low-ball offer to see if it would fly. I don’t even want the house or the location but after 191 days on market – yes more than six months I figured they would be willing to accept well below their overpriced $1.33 mil price.

Well, it’s now marked as contingent but still accepting backup offers. What’s the over/under on price. There’s no reason someone should pay over $1.2 but I would wager that someone thinks they are getting a deal at $1.25 mil.  Funny how the original list price of $1.29 mil has been scrubbed from the Redfin history. 

My offer would have been $1.1 mil. I figure break-even is in that neighborhood and $733/sqft for a flipped house seems fair enough. Someone bought this easy flip one year ago. I don’t care who your banker is, carrying costs on a million bucks over a year isn’t chump change.

I wonder if the word will spread to other Orange County flippers and real estate salesmen that El Segundo isn’t the town to make an easy buck (unless your last name is Abad or Ruane).

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If it looks like a duck…

Updated San Francisco Real Estate Report – May 2018

On a 3-month-rolling basis, median home sales prices in San Francisco yet again hit new highs in April 2018: The median house sales price jumped $55,000 over the March price to hit $1,665,000, and the median condo sales price jumped $50,000 in April to $1,225,000 (3-month rolling sales through 4/30/18, reported by May 2). Those reflect year-over-year increases of 23% and 8% respectively. Average dollar per square foot values also reached new peak values. 

 

Being Chicken Little is exhausting

I have had the sky is falling mentality in the stock market for a long time. In December 2015 I threw in the towel and sent an email to family and friends with my concerns. In January 2016 I looked like a hero when the market took a 13% hit after the Brexit vote. But the market took a breath and the powers that be decided it wasn’t time to let the market crash. The Nasdaq 100 has since rallied 70%. I look like a fool and to add insult to injury I missed out on a whole lot of gains while my money is sitting in a money market account making 0% interest.

Better safe than sorry….but here I am 30 months later and if I was gun shy then then there’s no way I can get involved in the market at this point. Same applies to the real estate market.

Am I tin-foil hate crazy or is my timing just off? Am I fighting a losing battle against forces that do not want the market to crash?

After the election we heard a lot about our lives being in an information bubble created by our own biases. I read about the impending financial collapse ergo I continue to believe in the thesis?

Today is no different; George Soros is another big-money guy out there saying we should be worried:

https://www.bloomberg.com/news/articles/2018-05-29/soros-sees-new-global-financial-crisis-brewing-eu-under-threat

And I have to be honest that the articles and posts I read about the trouble we are in are not coming from some po-dunk, mom and pop blog. Like Soros’ comments these fears and concerns are coming from experienced financial magnates that have more inside information than you and I will ever see.

WTF does this have to do with real estate?! They are all just symptoms of the same disease. Ten years of free money have created a debt-fueled market that has run amok. Now that the Fed is raising interest rates and Italy is at the precipice of a debt crisis I think it’s important to note that we WILL have to pay the piper. Is it now or another 30 months from now?

Everything is connected. I wish I could tell you what the first domino will be or if the first domino will truly set everything in motion. Just like last time when the dominoes start to fall the talking heads will proclaim that everything is fine. It’s just a correction and corrections are healthy. This time is different.  Until it’s not.

Or maybe like the past 30 months I should take off my tin-foil hat, buy a house, load up on Apple, Netflix and Amazon and make gobs of money instead of sitting here waiting for the shoe to drop. This is exhausting.

Break-even on home ownership

The OC Register and Zillow take a stab at some back of the envelope math that will give you a sense of how long it takes to break even after buying a house vs the money spent renting.

The downfall is that so many of these stats take the median sales price for LA or OC which isn’t close to the cost for any of us to by a home in a desirable area.

https://www.ocregister.com/2018/05/22/buy-or-rent-a-home-in-southern-california-heres-one-way-to-figure-it-out/

Typically, it takes three years and eight months to reach the break-even point in the L.A./O.C. area, Zillow researchers say.

For buyers, Zillow assumed a 20 percent down payment, mortgage payments at recent rates, 3 percent purchase costs, 8 percent selling costs, home appreciation forecasts, federal tax deductions and other factors.

The formula reflects a median home value of $645,199 in the L.A./O.C. region in the first quarter of 2018, and a median rent of $2,753, as computed by Zillow.

Not sure if it’s safe to assume that we should double the time frame to get something close to the break even timeline for buying in El Segundo. I’d venture it’s safe to say that the break even is much longer than 3.75 years when buying a million dollar home.  Like my previous blog about the new post Trump tax plan math I wonder if Zillow factored in the return on the additional home ownership costs? I wonder if their math falls apart when we start talking about $300k down payments and hundreds of thousands in mortgage that doesn’t qualify for a tax write-off? Probably not.  The math is still bad. There’s a couple decent sized rental homes available in town. Go rent them, save that extra $2k/month you would be spending to live in a smaller home.

Be patient.

Asleep at the wheel

I came across 628 W Oak the other day. I wrote about in back in March 2017.  At the time I thought it was priced wrong. Why was a big house on a big lot priced at $345/sqft?

I didn’t dig much into the history back in 2017 but here’s the jist. They tried to rent it out at $3750 for a couple weeks but then opted to list it a month later for $1.25 mil.

Here’s the before:

3 beds

2 baths
2,187 sqft

2017 Description
Desirable westside El Segundo location at the top of West Oak. Second story master bedroom, bath, attached sunroom and balcony – ocean views. This is a 3 bedroom, 2 bath home, family room, dining room, 3rd bedroom opens to a large living room. Large, attached laundry room / storage room + 2 car garage. Double pane windows and air conditioning. Refrigerator in kitchen and storage room included. Washer and dryer are also included!

 

DATE EVENT PRICE
05/17/18 Listed for sale $2,650,000+112%
05/11/17 Sold $1,250,000+0.1%
04/03/17 Pending sale $1,249,000
$/sqft: $345
03/20/17 Listed for sale $1,249,000
03/12/15 Listing removed $3,750/mo
03/03/15 Listed for rent $3,750/mo
$/sqft: $1.71

Here’s the after:

The large great room floor plan, professional chef’s kitchen, 2 en-suites downstairs, a Jack-and-Jill bedroom layout and secluded master en-suite with spa like bathroom and private patio upstairs make this custom designed, ocean view 5 bedroom, 4.5 bathroom home so versatile it will suit all your needs. The 3 car garage with optional 200 sq. ft. of flex space for yoga/workout room will pamper the most discerning buyer. 

In a year they created this GIANT 3617 sqft 5/4 that may have a peak at Hyperion ocean views. It’s now priced at $733/sqft.

I can’t fathom trying to fill a 3000 sqft home with stuff, but once again this shows the horrendous pricing pressure on the normal buyer. If you have means, you are getting a brand new, beautiful home for $733/sqft. If you a regular joe sixpack you get to be happy paying $900-1000/sqft for crap.

Now I wonder how many Venice, Mar Vista, Manhattan Beach would-be residents can be enticed to come to our little ole town?

 

Why Are So Many People Moving Out Of California?

Why Are So Many People Moving Out Of California?

http://theeconomiccollapseblog.com/archives/why-are-so-many-people-moving-out-of-california

 

…for most families, the decision to leave California comes down to one basic factor…

Money.

For a lot of Californians, it simply does not make economic sense to remain in the state any longer. 

…Under the old rules, the tax burden imposed upon Californians was mitigated by federal rules allowing for the deduction of state taxes.  But now the new tax bill has made some major changes, and some experts believe that this will actually accelerate the exodus out of the state of California.  

…For many, the exceedingly high cost of housing in California is the primary reason that they have chosen to leave. 

…The homelessness issue has achieved a special distinction in Los Angeles. Having increased 50% during the past five years, “it’s supplanted traffic as the topic everyone talks about,’’ 

 

Same old story. How long can I convince my wife that the LA/El Segundo dream is still alive?

Patience is a virtue

I’ve written over and over how incredibly wrong my time frame has been. I’ve been so wrong it hurts. In the past 20 months that I have been writing I could have made ~15% appreciation if I bought a house (not really because it would take 6% commission to unload it) or I could have made about 25% if I sunk my down payment into an S&P 500 ETF (that hurts my soul).  But you know what I have 20 months later…my entire down payment. Sitting in an account making ~0% interest….but it’s still there. Ready and waiting.

I can’t remember how bad my portfolio got hammered in 2007/2008. I dug up my 2007 and 2008 1040s it doesn’t show evidence that I lost a very much. At the time I was really active in trading and fairly successful. What I do remember is after the shit hit the fan I was ready to buy. In 2009 I bought stocks I had never even considered before and made money. WTF do I know about Ford, Citi and BofA? Not much except I knew when they were too cheap to not buy.

Today I know when things are too expensive to buy. I’ve waited this long I might as well be patient.

Despite this blog being about real estate I feel that the crazy real estate prices are merely a symptom of the disease. We aren’t dealing with the same issues that caused the previous collapse (greedy ass bankers). Oh wait….

So even though real estate may not be the first domino to fall, rest assured it’s one of many dominoes that will fall when something sets everything in motion. (at least this is what I tell myself when I cry myself to sleep for not making 25% in an index fund).

Low income in SoCal on $90k

Orange County’s low-income threshold approaches $90,000 for a family of four

https://www.ocregister.com/2018/05/08/orange-countys-low-income-threshold-approaches-90000-for-a-family-of-four/

An Orange County family of four is “low income” if it earns $87,450 or less, new U.S. Housing and Urban Development income limits for 2018 show. That’s the eighth-highest low-income limit in the nation.

San Francisco again had the nation’s highest low-income threshold. A family of four living in the city, or in neighboring Marin and San Mateo counties, qualifies as low income if its earnings are $117,400 or less.

ocr-l-lowincome-0509

We are screwed

I write this blog selfishly. I live in El Segundo, raise a family in El Segundo, have ties to El Segundo and see my life spent in El Segundo. Despite me bashing every tiny, overpriced POS house that hits the market, somedy I want to own one (if and when it makes sense). For the past three years it hasn’t made sense. The math is bad, even though in hindsight it would have worked out to have overpaid in 2015. I still think the real estate and economic world is due for a giant reset. History has proven that it always comes. Is this time different? Has the US economy escaped the confines of regular business cycles? Has real estate and home ownership reached a point where you can’t lose?

I came across this study of real estate and migration trends for California. The study began in 2016 and has been recently updated with data up through Q42017. It reaffirms my fears about SoCal. We are phucked.

Low income earnings are fleeing the state and the new people we are attracting in NorCal and SoCal are mostly high-income earners. We have failed miserably as a state in constructing enough new homes to keep up with demand. Low supply, increasing demand = rising prices until we hit equilibrium. Californian’s are notorious for the NIMBY (Not in My Backyard) chant. In El Segundo we scream foul when someone mentions building homes east of Sepulveda. Yesterday the locals in Korea town screamed bloody murder when the Mayor said he was opening a “temporary” emergency homeless shelter in K-town. Despite the fact that homelessness is a horrible issue in K-town, the neighbors would rather step over homeless people on their sidewalk than build a shelter that might attract homeless.

The report says if we continue on this track of being short on new construction home prices will continue to rise. I may balk at $1000/sqft tiny home but someone that is playing with monopoly money and stock options may not care.

Who will win? Those of us sitting on the sidelines patiently waiting for a dawn that never comes or those that roll the dice and are rewarded with 7% annual appreciation on their over-priced home? (The real winners are those that can leave the state.)

Read the entire PDF here:

Growth Amid Dysfunction: California Migration, Current State of California
Housing Market, and California Employment by Income

 

  • Post-recession housing construction has been slow. From 2008 to 2017, an average of 73,000 new housing permits were issued per year – far lower than the average of 135,000 permits issued annually between 1991 and 2007. California has the nation’s second-lowest rate of homeownership and worst rate of rental housing over-crowdedness in the country.
  • Housing costs for homeowners with mortgages are the second-worst in the nation, and housing costs for renters are the third-worst.
  • For homeowners in California, the share of income spent on housing was 21.9 percent in 2016, down from 22.5 percent in 2014. California homeowners spend more on housing than homeowners in any other state except New Jersey.
  • For renters, housing costs have decreased from 33.6 percent of income in 2014 to 32.8 percent of income in 2016. California ranks 48th of 50 states for this metric.
  • From 2007 to 2017, only 24.7 housing permits were filed for every 100 new California residents. The U.S. average is 43.1 permits per 100 new residents. California is permitting roughly the same number of housing units as Florida, despite having approximately 18 million more residents.
  • The housing stock gap is actually being helped by the number of residents leaving the state, and the housing shortage would be even worse if there was no domestic migration.
  • The main driver for net out-migration appears to be high housing costs, since migration rates are highest for those at lower-wage levels. The vast majority of people who moved out of California were concentrated in lower-skilled, lower-paying fields — namely sales, transportation, and food preparation — which together accounted for a net outflow of more than 180,200 people from 2006 to 2016.
  • Migration trends suggest that the middle class is also being priced out of the state. Net migration of those earning between $30,000 and $49,999 accounted for 93,500 households leaving California from 2006 to 2016, or 18 percent of net out-migration. On the other hand, net domestic migration for households earning from $50,000 to $99,999 has been positive since 2010, representing 52 percent of net in-migration.