Santa Monica Sticker Shock: Passing the $5 Million Mark

We reported twice today on falling prices in the LA area, so it's only fair we also report this: Westside Bubble reports prices in Santa Monica are busting through the $5 million mark -- and this house is not close to the beach.

From Westside Bubble: "This really got me a week ago, asking over $5 million north of Montana, east of 7th. I remember when $3M was high-end, then $4M, now they're trying to pass $5M. It's at 333 20th, 5 bed/6.5 bath, asking $5,095K, featuring all the usual stuff. For an ordinary-looking house on a 60' lot. Aren't you supposed to get a faux chateau for that? (Actually 127 17th crossed the $5M line first, asking $5,395K, sold in March, but I think that's a double lot with tennis court.)"

Twentieth Street is 20 blocks east of Ocean, which in turn is a good distance east of the beach.

Blogger's note: I find these neighborhood price milestones to be meaningful -- somewhat similar to when the Dow rises over one of those "psychologically important barriers," like 13,000. Once somebody has broken the barrier, even if it's just as an asking price, it makes it that much easier for other realtors, and other homeowners, to follow suit.

Comments? Insights?
Photo Credit: Westside Bubble

Comments

[Mr Income Stream]

That is so foul on so many levels. 5 million. I guess they have an injunction on the homeless people there... Because I would hate to pay 5 million for a house and wake up one morning with a homeless local using my front lawn as a toilet. What was the seller smoking when he listed this it wasn't Santa Monica's favorite flower Mary Jane... this has to be something far more powerful and new to the planet, the Realtor must've received a double dose of whatever it was for taking the listing. No water view, Not guard gated, Can see the house from the street, lot size described in feet not acreage and you're asking 5 million? E-gads people have lost their minds.

[Realtiy bites]

This is the likely scenario (having seen the same in Regent's Square North of Montana about 2 dozen times in 15 years): the land was purchased for land value and as a tear down for about $1.7 -$2.1 million (like so many others) in late 2005 or 2006. Construction costs for 5,000 sq ft at generic but inflated 'finished' luxury prices of $400 sq ft adds another $2 million. That makes $4 million with the construction profit already built in for the developer in the $400 sq/ft price.

Why pay an extra million when there are so many other similar houses, which perhaps have more curb appeal?

The developer will argue that Santa Monica is a difficult City to work in and you pay the price for a house in 'move in' and new condition. But there are so many other similar houses on the West Side, the argument does not really sustain itself.

The North of Montana yards are tiny once the large houses are finished. There are virtually no backyards and no sun light on the East side of the street in the back yards of a 2 story house. Who with $3-$5 million to spend on a house wants to live in what is essentially a landless condo? Not great for kids or pets. Is it for the Franklin School District? Good until middle school maybe. Many say to avoid the high school.

Is Santa Monica real estate immune from price declines because everyone in the world wants to live there? Perhaps. There are aways stories to sell on each side of an investment bubble.

But realistically the values are hard to figure historically, and unsustainable in the long run. There is no question that Santa Monica residential real estate has one of the most inflated speculative investment bubbles in the USA ( more so than Florida), perhaps one of the largest residential real estate bubbles in history. Even considering that many of the price increases are due to changes in the quality of the housing stock by new McMansions, the prices are severely inflated by the easy availability of jumbo loans. And the $5million price is certain to stoke more of the same. Maybe the Redline mortgage broker will buy it.

Generally, people make the most 'real' money at the top of every investment bubble if they sell at the right time, and this is perhaps evidence of that. That is, until the bottom eventually drops out... I would not be surprised if the other four development lots on 20th Street will ask $7million each with plans through August 2007.

Now is the time to close a sale. It is a thinly traded market, with about 25 homes sold a year. Now is not the time to buy, because in August 2008, the average finished housing stock will likely fall back to $1.8 million.

Huge price declines at the end of the investment cycle, even in thinly traded markets like homes, is the nature of a speculative bubble. They blow out big time. And historically, Santa Monica's residential real estate bubble is one of the biggest over valuations ever.

When the land prices fall, and some of the more extended developers declare bankruptcy, prices for this type of finished building will return to $1.8 million. Or less.

[Westside Bubble]

I'm flattered! You found me before I found you (now added to my links).

[Craig]

It would be nice to see more folks come on over to the west side bubble blog. I am not the creator or anything, but I follow Santa Monica closely and have access to mortgage records (all legal as they are "public information"). I try to dig up details on high end homes and expose a lot of the antics that are falesly pushing up values. I also like to show all of the 100% financed condos that are starting to get foreclosed on. Santa Monica is in for just as big a bust as anywhere else.

It is unbelievable how many folks in SM try to act rich and keep up appearances...however, when I dig, I find lots of people who are doing 100% financing and then going through multiple home equity lines of credit. Also, people who have lived in homes for many years and built up equity have been drinking the kool aid as well and almost always have at least one home equity line of credit...leverage is great going up, but it will be a rude wake up call when reality sets back in. 1 bedroom condos going for $500-600K?? and "entry level" single family homes starting at $1.5 million (and most being in tear down shape at that)?? Oh boy, this is not sustainable.

[AnnS]

"1 bedroom condos going for $500-600K?? and "entry level" single family homes starting at $1.5 million (and most being in tear down shape at that)?? Oh boy, this is not sustainable.

Posted by: Craig | May 31, 2007 at 03:21 PM "

Craig has the right of it.

The median family income in the dity of Los Angeles is $47,434; and the medan household income is $42,677.

The median fmaly income in the county of Los Angeles is $52,431and the medan household income is $48,248.

Using the sensible rule that the mortgage, taxes and insurance should not exceed 28% of gorss monthly income, in the city that means total payments of about $1050. An average HOUSEHOLD/FAMILY income in the city of $45,000 only should get a mortage of $183,999 for 30 years

In the county, applying the same rule, the average HOUSEHOLD/FAMILYincome is $50,340. That means only $1174 for mortgage, taxes and insurance. That income only gets a $209,312 mortgage fo 30 years.

The prices have no relationship to the income of the area. You can not sell more than 50% of the house to far, far, far less than 50% of potential buyers. Anyone who sat throught the first 2 weeks of Economics 101 knows that.

When there is more of a supply than there are buyers for the item, the price has to go down.

[Billy BobHenry]

>>>If you are under 13 years of age you may read this message board, but you may not participate.<<<

Is this chronological age or mental age?????

[My Left Field]

The price of land may fluctuate, but construction costs *will not go down*.

Read that last sentence a few times.

Yes, land may be "overpriced" - or it may not - but you can not assess the real estate market (especially condos) without considering the hard costs of construction. At $200/ft sq, a 1500 sq/ft condo will still cost 300K, raw. Add costs of land, development, etc. and 500K is really not that far off. Depressing? Yes. Will costs go down? Not much.

What does all mean? It means, "Get your ass in gear, NOW, and make some dough. Get a regular job and save your $$. Get married, but don't have kids. Be financially responsible. Hold your nose and cry when you buy the cheapest piece of rat infested overpriced garbage next to the 7-11 under the freeway that you can afford. If you can do better, OK, but if you can't, don't worry. In ten years, you'll be soooooo thankful that you own anything at all."

Just my .02.

[Windu]

As much as some are praying for Westside home prices to tank, it's just not happening. And frankly, I'm not sure it will. Pop over to the Homicide Report and check out the link to Michael Quick's map of L.A. homicides. Out of the hundreds of death markers shown, there only 4 to the west of the longitude represented by LaCienega Blvd., all the way from the 101 to Palos Verdes. For some areas east of that line, there are so many black markers it looks like someone spilled ink on the map. And south of Sunset, north of LAX? The number drops to 2.

The fact is that the Westside sells peace of mind to affluent families with kids, plus cachet, beach proximity, and a lack of Valley smog and heat. And for many, disgustingly, the relative lack of diversity is a plus. I personally know well-off Brentwood parents who think their newlywed kids are slumming it by buying in Hancock Park. As the middle class is priced out of L.A. leaving a clogged and stagnant hourglass of haves and have-nots, the demand for the best of Westside real estate may actually increase.

After all, those six-percenter real estate agents who doubled their income during the boom are movin' on up (I know two that have just moved into the $1.8M+ mansions in PDR's One Westbluff development). And the large law firms in town have just raised first-year salaries to $160,000 (not including bonuses).

[Simon]

I have heard these theories few years ago that interest rate goes up, price has to come down. Most people out there ignore the most important factors that affect home price: population growth, job growth, and salary growth. More people moving in to the specific area, such as Santa Monica, and/or job growth, and/or salary growth, any of these would easily offset the higher interest rate, or higher prices.

[John T Watts]

If you want a lot of house for the money, move to Texas.

[Craig]

My Left Field,

I basically agree with you. However, when I talk about 1/1 condos for $500-600K, I am talking about about half the sqaure footage you are referencing...so I'm thinking about 800 square feet (not 1500). Also, these "condos" are not really condos...most are converted apartments in old buildings. The cost to build new may be going up but the idea of depreciation has to apply here, because with a condo you don't even own the land. I'm not going to tell you that west side real estate should be cheap, because it shouldn't...but things right now are so out of whack it is unbelievable. Lots of low end condos are defaulting and going into foreclosure right now (in Santa Monica) and the trend is only getting stronger. I have access to loan information and I post this info at the west side bubble blog so come on over if you want to debate it or see the evidence for yourself.

But again, all the "get it together now" and work hard stuff I completely agree with.

[andrew]

What is happening in Santa Monica doesn't disturb me at all. If property values are rising, and people can allegedly afford to live there, more power to them.

What is disturbing is the lack of investment in housing, public transportation, health care and the environment in the rest of Los Angeles. If there were a quick and easy way to travel from Brentwood to downtown in 25 minutes on a light rail or monorail, maybe the situation of privilege along the Palisades would not seem so disturbing.

We have an incredibly unequal distribution of resources in the nation, that is leaving the middle class squeezed and the poor forgotten and struggling. The collapse of sub-primes may "hurt" brokers but it is KILLING whole neighborhoods in formerly decent areas (don't laugh) of Detroit and Cleveland. Hucksters finananced by Wall Street have played a huge numbers game with credit by preying on those least able to pay and are still playing with lives even as people lose homes in foreclosure.

God Bless Montana and Santa Monica, and keep the clean winds blowing over the rose and lavender gardens as mommy drives her S.U.V. to Whole Foods to buy kambucha mushrooms and $15 hair gel. May all the blonde heads in the school yards continue to go back to their McMansions and play on their laptops until they go on to Yale and Harvard and eventually inherit those $15 million dollar starter homes while the rest of our nation goes to hell.

[spom]

There are a lot of wealthy people converging on L.A. from all parts of the world. To some extent, by allowing our city (and country) to become crowded we are pricing ourselves out of our real estate.

[ariel]

This just goes to show the pettiness and irrationality of Californians and their Realtors. No one cares anymore about living simply without a crazy debt. If white Californians actually knew how little things cost in other states, maybe this state wouldn't be the mad house that it is today. And I say white because the gentrification here is causing them to be the only ones with mobility. THIS IS gentrification. Why don't people fight the costs of housing instead of making themselves insane trying to earn enough to buy these ridiculous houses?
Image, probably.
Californication.

[Dan]

Here's a current listing: Brand New 3 bedroom/2 bath; 1400 sq feet; lake view on 1/4 acre; 3 car garage; in nice neighborhood full of educated expatriates from both coasts - reduced to $145K. Oops... I must be on the wrong blog... this home is in Bella Vista in Northwest Arkansas. (Sorry to all my former pals in SoCal who are max'ed out and knocking out 70 hours a week at the office trying to make ends meet - we're strolling down to the links to hit a few balls where it so laid back no tee times are needed!). Yes, Virginia, there is life outside Cali.

[la4life]

>>Here's a current listing: Brand New 3 bedroom/2 bath; 1400 sq feet; lake view on 1/4 acre; 3 car garage; in nice neighborhood full of educated expatriates from both coasts - reduced to $145K. Oops... I must be on the wrong blog... this home is in Bella Vista in Northwest Arkansas. (Sorry to all my former pals in SoCal who are max'ed out and knocking out 70 hours a week at the office trying to make ends meet - we're strolling down to the links to hit a few balls where it so laid back no tee times are needed!). Yes, Virginia, there is life outside Cali.<<

Let's say I'm Joe lawyer who just made partner at a big firm in LA. I'll take him $800,000 in 2007.

What will your pal in Bella Nowhere make?

Welcome to the world of REAL ESTATE IS LOCAL.

[www.BetterVillage.com]

How bathetic: there are still pockets of sizzling sales in overly gentrified areas - while most areas are slumping.

Maybe this whole thing has been "gamed out" by people who don't have "our" (American's) best interests in mind? I don't subscribe to conspiracy theories, but I remember that a few years back I saw a credible report that china was waging economic war on us. Here's a similar report from back then:
http://www.newsmax.com/archives/articles/2004/6/17/135930.shtml

So what to do if this is true? I like the Warren Buffet approach - austerity: shed our national and other debt and become much more self reliant by investing in quality, in ourselves. We cannot be complacent when other countries have no problem exploiting our greed, vanity and other weaknesses. So, whether you are buying a $5M shack in SM, or trying to get 100% fnancing on a $100k home anywhere else, think that there might be some very sharp people huddled somewhere over a giant "go" board, planning their next moves. I know folks with plenty of extra cash who are still gaga over foreign stocks and real estate. Please get over this until everyone can learn to play fair.