Cold Property: update from the frozen upper-middle/lower-upper end

 

Back in August, I posted on this 2,300-square-foot Pasadena house that was listed for sale at $875,000. It had been on the market then for about six months with numerous price reductions, but was still clearly over-priced for the time. It had sold for $898,000 in 2006.

This looked like a good "indicator house" showing the lockup in that slice of the market. The sellers couldn't cut their price to market level because that would be below what they owed; lenders weren't being aggressive in moving properties through short sales.

In August, the agent at the time said the sellers were current on their mortgage, but would not be able to afford a looming jump in mortgage payments and were trying to get out. The house was pretty tricked-out by its last owner, with a Viking range in the kitchen, nice pool, marble and granite everywhere. But it lacked what it needed to sell -- a price appropriate to the market.

Eventually, the house was listed as a short sale, and a couple of months ago the price had come down to, I think, $760,000 -- still too high, apparently.

It was foreclosed last month, with the lender owed $650,250.

So for more than a year, the seller and the bank could pretty much see they had an asset not worth the stated price, but no one was able or willing to do anything that might cut their losses swiftly.

It's now back on the market at $727,650. I'll let you know if it sells. If this is what it takes for the market to find a bottom, we're in for a long, inefficient crawl.

Full disclosure: I live within walking distance of this house.

--Peter Y. Hong

  

Comments

[jag]

I'm just amazed on how banks rather foreclosed on a property than trying to work out a short sale. At the end of the day the bank's take a bigger loss. I've seen several homes go through this process, but the foreclosed homes ended up being destroyed.

[mark g]

is this REO, or was it bought at auction by a speculator/investor? This is just the beginning of this wave... investors are not biting, so this combined with the frozen move up market and potential interest rate increases means price reductions coming...
/at least I think so...

[Ace]

I am sad to say that I predict multiple bids and that it will sell for over asking price in the next week. People are suckers for pimped out houses and are suckers for foreclosures. It will sell over asking. The buyer will regret it immediately.

It probably didn't sell as a short sale because the bank is clueless. I just dropped out of escrow on a short sale. The bank's negotiator approved the price and then after 3 weeks, some junior mba decided that he wanted the buyer to pay 10 percent more and the seller to sign a note for the difference. The seller lost their job and is moving out of state and the bank thinks they can get them to sign a note. I am glad that we keep bailing out these genius at the banks.

[Tim K.]

Here is why this house will not sell:

It has many houses that are as big, in just as good or better neighborhoods, for less money. This house is on 184 Ave 64 in 91105.

Examples:
$729K 3340 Crestford Dr Altadena, CA 91001
$699K 3556 Canon Blvd Altadena, CA 91001
$679K 2037 Jefferson Dr Pasadena, CA 91104

And these houses haven't sold in many months.

So this house not only has to beat these homes, these homes have got to lower their prices too.

That house is no bargain, and I think you need to pick a more aggressively priced house as your indicator.

It might be easier simply to scour the latest sales records - those are a more accurate indicator of what the market is doing today.

[Jonah1979]

The best times to buy are definitely still ahead for us.

[NoHoDolphin]

Peter, great article and more so, great writing on this. It not only tells the TRUTH about the current market but it has SPUNK! It has a voice.

I do wish (I know, there's ALWAYS a wish) and this isn't neccessarily aimed at you but I do wish that some journalist(s) out there would nail down these banks, etc with the hard questions of WHY WHY WHY? Why are you holding onto shadow inventory? Why don't you short sale in a speedy fashion? Why don't you come to the realization of the NEW fair market values? There are so many peeps that want the dream but by having prices (on good homes) slowly drop and only placing a choice few on the market at a time, the only buyers that are snapping up deals are investors or people with a TON of cash (more than just 20% down). Do we really want to become a society of renters that are making the rich richer?
But enough on that and again - great job on this!!!

[Danny]

Peter, I agree that this is a very good article. I appreciate that you try to remain as objective as possible with these things. Bottom line: your house is going to lose some value, but you're going to love living in beautiful Pasadena for many years. I think America's 25-yr-old love of upgrade-itis is going to dispel quite a bit. More of us are going to be living in one home our entire adult lives.

Anyway, the one point I would like to make is that I wish there was more reporting out there educating people on the history of real estate bubbles. When they pop, they pop all the way down (actually overshooting usually), and then recover is very very slow. Too many sellers or would-be sellers are expecting prices to rapidly appreciate once they hit bottom. There is no other explanation for why they aren't cutting price. Perhaps they think of the market as having a temporary credit flow issue (not at all the case) vs. a market returning to affordability. In any case, so many would save themselves a bundle of money (and a lot of heartache) if they would just wake up and cut their asking prices now rather than accepting the much deeper cuts later.

[Danny]

Nohodolphin - I think it's pretty obvious why banks have an ever-growing shadow inventory. They don't want to decimate prices by flooding the market. And this isn't some altruistic move either. The unfortunate fact is that many of our banks will be insolvent if housing prices (and commercial real estate prices) fall to where they are going. The only reason banks are surviving right now is that the government allowed them to mark their assets at inflated values.

[NoHoDolphin]

Hi Danny,

I totally get why the banks - do what they do - in respect to inventory, it's just so frustrating and is only going to drag this huge mess out... for--ev--er... and result in even bigger price drops and longer recovery time. Not to mention that while banks are holding out on short sales (not getting anything for them) people are living scott free but month after month I pay rent hoping one day to own.

[Pasadena'ed]

What the...? Did they just glue to houses together with a tacky entrance? That is one of the worst (best?) examples of Frankenstein-style renovation I've seen in a long time. Depending on what neighborhood in Pasadena we're talking about, it's got to be one of the least attractive homes on the street. Does the water drain into the center between the two pitches and create a cascading waterfall on either the front or back of the house?

It certainly doesn't have looks going for it, especially at that price. Good luck to the bank hold on to that one. Yikes.

[el pez]

An interesting post- this is gonna take forever... A year ago I thought, 'Oh prices will correct' and they certainly have in Lancaster (see the newer post on that- wow!), but this is pure molasses in the more coveted zones.. I'm afraid it will be a long and slow drip. And the economy is MUCH worse than I had expected it to be. Significant doldrums coming folks, tighten em up! And we are running out of borrowed money to prop the banks up... more shocks are coming...

[Steve]

This is still an over priced dump. As I have stated earlier the Hell Hole of LA, Pasadena included, is now competing with out of state properties. Where I live now in CO this stocco dive could barely get $150K, this is why so many are just leaving the over priced hell hole of LA with RE so much less, this is happening now in mass numbers. I would estimate you have about another 20% decline to go given all the state issues and a quality of life now almost equal to third world country.

[the problemwithcaring]

Folks should check out Calculated Risk's Tanta Short Sell blog post on this - which CR reposted last week. (Sorry no link.) Apparently, with the holding costs and the fees associated with a short sell, the ''discount'' we all see them pocketing is in fact nonexistent. Combined that with Danny''s comment, a general lack of capacity at banks to handle the requiste workload or the local market expertise to get ahead of such rapidly falling prices, and you have the jist of the problem.

Please read it, its good stuff.

[Tobin's Spirit Guide]

This is a well-done, Peter Y. And so are some of your other recent posts. Thanks for offering a dose of reality (not wishful thinking). I've been a longtime reader, but never felt obliged to comment before. Like many of the regulars, however, I felt the rah-rah direction LAland took after Peter Viles' departure and the focus on celebrity homes had rendered this blog irrelevant. But folks, given this week's posts, it seems like things have changed. PYH, we're looking for you to illuminate trends and focus on the myriad dynamics pushing and pulling on the LA housing market. Your customers were dissatisfied, but now you seem to be giving us more of what we want. (That doesn't mean spoonfeeding us specific news, of course. I'm talking about topics and direction.) So please keep going in this direction, sir. And we'll keep reading and debating.

[JayC]

The reason banks can't unload houses at market prices is because if they do, they have to realize the loss on their books. If a bank has $1000 cash and a house loan on the books for $1200, they're $200 in the black and still solvent. If that house is worth only $800 and they sell for $800, their book is worth negative -$200, and they're insolvent. It might seem like banks should just eat their losses and get on with life, but the accounting rules are critical to understanding why banks can't unload properties at prices the market will bear.

[JayC]

Edit: Just realized the math in my example above was flawed, but you get the point.

[1Opinionator]

In many cases, the owners of the note can't be determined because of being sold several times; the following link is dated, but has info describing why homes aren't brought to market and sold
http://www.bloomberg.com/apps/news?pid=20601087&sid=aejJZdqodTCM

[Ace]

theproblemwithcaring,

Thanks for the link. Good article.

[Lisa W]

Part of the problem here is that 91105 is a nice area (SW Pasadena), so that if you run "comps," you get a high per square foot value. But Avenue 64 is a big, very busy street, which makes the house considerably less desirable. Also, the design is pretty hideous and the Redfin text suggests there may be permit or other problems.

[Nick]

Thanks, Peter for this article. It seems like all the news is focused on the fringe areas of LA County that are so cheap, but so far from work. How many people who are buying in these inland / high desert areas are opting for an affordable house but a 90 minute commute 1-way to work?

[Angela]

I remember this house. It was actually listed on August 4, 2007 for $1,148,800. That is one big haircut.