Wednesday, November 5, 2008


Anyone remember the delusional seller in Riverside that listed his "professionally decorated" home for 1.4 million when the comps were around $500k? That thread was memorable because the seller or friends of them found it and posted.

Tonight I checked that tract again. It's a nice gated tract off Victoria Ave just below Lake hills. My wife has a doctor friend that lives in there. It's a nice area, but how are the prices holding up. Well, they're not. There are currently 6 homes in the tract listed on Redfin and 5 of those are under $400k! The lowest, and it's an REO is $324k or $89 sq/ft. Unless the house is gutted, that's probably a decent price.

It looks like the dellusional seller asking $1.4 million (he later reduced it to 1 million) is really in a world of hurt now.

The price leader in the tract is 17027 First Light Ln. It is a 3655 sq/ft home with 4 bedrooms and 2.5 baths. It was built in 2003 and last sold in Sept 2006 for $750K. It's currently listed for $324k and has been on the market for 117 days with 3 weeks of that at the current price. At $324k this sure seems like a pretty good deal. If they get asking price that's a loss of 57% or $425k from the last sale.

The next lowest price is 16398 Hidden Pk. This home is larger at just under 4000 sq/ft and has 4 bedrooms and 3.5 baths (same floor plan as Mr. 1.4 mil). This one is also an REO. It last sold in May of 2007 for $715k. Wow and it's already an REO! It's been listed for a month and has already had 1 price reduction. It's currently listed for $398K or $102 sq/ft. Also not a bad deal in my opinion (currently). If it sells at asking the loss on this one is "only" 45% or 317K.

Another one is 17243 Bluff Vista Dr. This is the same floorplan as the first house. It sold last in Aug 2005 for $668k. It's now listed as an REO for $385k or $105 sq/ft. Again, this is a decent price currently for this home. This one has only been on the market 2 weeks.


Oldtimer said...

Wow, the IE is finally getting its groove back.

What has drawn families for decades to move from the coastal plains further into the hot, smoggy, traffic-choked desert has been relatively cheap and abundant housing.

At $100/sf or so, those prices are not just good for right now, but probably good over the long term. It costs $60-$80/sf to mass-produce houses in CA, assuming the land and entitlement process is free (and land entitlement costs continue to move the opposite direction of free). This compares with around $50-$60/sf in the mid-1990s, when building codes were more flexible and oil was in the mid-$20s. I know of one homebuilder that bragged of $48/sf costs back then, but that entailed quality trade-offs that were horrific (check out mid-90s Victorville homes for examples).

I read this blog to keep track of "what inning we're in" in terms of the housing correction for the IE, which is SoCal's biggest new housing market.

Based on these prices, it feels like the 7th or 8th inning. Prices for this tract may drop further, but in terms of value, they are around where I believe they should fluctuate over the long term. This tract is gated and in a relatively good location for the IE (not far from the job bases in LA and Orange Counties).

The problem that remains is nearby homeowners whose mortgages are near or above $200/sf. I would guess that most of those homes will eventually become REOs, with indifferent banks/middlemen as sellers. I don't see much benefit from mortgage modifications for those folks, as there best option is to buy a new home at $100/sf, and let their lender deal with the $200/sf mortgage.

Getting close to a bottom.

alex said...

X, thanks for the history. I wonder if himantc will come back?

oldtimer, $100 does sound good as replacement value, but how many buyers are there, even at that price? I worry that as jobs evaporate over the next few years, the market is going to shrink more and more. In addition, as banks require 20% down, how many people have $75k saved up for a dp? Finally, since many of the buyers for these lux houses are from LA/OC, how many of those buyers are going to be willing to make the drive, rather than buying something closer to work?

Basically, I think each of these things are going to lead to an 'overshoot' on the way down. Will you be able to pick one of these houses up for $200k in a couple of years?


Rob Dawg said...

Jeez, the freakin' water charges have to be 2 bills per month.

These are excellent rental price points except... Yeah, except. The problem is that yes you can rent cash flow positive but you are almost sure to be undercut in a year when somebody snags an even lower cost basis. Between jobs and over building I expect a rent spiral much like the home price spiral.

jennalee ryan said...

a house is only worth what someone will pay for it. with skyrocketing unemployment, rising food costs and now a huge raise in sales tax, there arent going to be too many "someones" to pay much of anything. In the 1990's houses were selling for less than the rate of construction. Its happening again

golfer_X said...

This is a nice tract but like already mentioned the schools in the area are not great. One might even say they are poor, really really poor.

I doubt these would pencil out as rentals. says you need to get this for $287K to pencil out.

jennalee ryan said...

national unemployment is 6.5 % now..california is at least 8.5% as it was 7.5 a few months ago and they say that half the increase has been in the last 3 months. Unemployment is to continue to rise until the end of next a national of close to 11%...that would put california at around 13%.(these are ultra conservative numbers) hang on to your hats, we're headed for a wild ride folks, something that none of us under 80 has seen in our lifetimes

jennalee ryan said...

p.s. i estimate that prices will drop another 30% in the next two years

FairEconomist said...

jennalee, how are you predicting unemployment? I was estimating 13% nationally based on the A2/P2 spread (the extra rate that a mid-credit-rating company has to pay to borrow and an estimate of bankruptcy risk) but it's gone even higher since. Of course the markets are just insane right now and it's not clear what indicators indicate anything other than panic and market manipulation.