Smart move in Pasadena?
On Tuesday I posted info on a Pasadena house that embodied many of the inefficiencies we're seeing in this housing cycle. It's mortgage debt far exceeds what buyers are willing to pay for the home, which has been foreclosed.
Just a bit down the street, there's another house at the far opposite end of the spectrum in terms of its market history. This place is as minimalist as the other house was extravagant -- in quite a stylish way.
The roughly 1,100-square-foot house was purchased in 1994 by its current owners for $218,000. That was $20,000 less than what it sold for in 1988. It went on sale last month, listed for something like $580,000, and is now in escrow. Though records show it as a one-bedroom, it was listed as a two-bedroom, and had a swimming pool.
I'm guessing the family that lived there for 15 years is ready for a bigger place -- and maybe even has paid off the mortgage by now. Looks like the owners' restraint during the bubble paid off. They probably could have sold for more during the peak, but might have gotten into a pricey trade-up purchase they would later regret.
Having been camped out in the Antelope and Victor valleys recently, I haven't had a chance to knock on the door to see if the family wanted to share its story, but will try to do so soonest and provide an update.
-- Peter Y. Hong
Photo: Peter Y. Hong / Los Angeles Times
Peter,
This is a good topic to focus on, those that are able to sell in this environment and what they plan to do with the equity... some will buy right away, but I believe most will sit on the sidelines and await the mid-upper level shake out... the real key is what percentage of the market do these individuals account for?
Posted by: mark g | June 11, 2009 at 11:28 AM
I hear the same phenomena in San Diego. My son saw a house on the hill in Point Loma (views of the bay and the city) that sold on the first day listed for $490,000.00. It is an 1100 sq ft moderate fixer. When I incredulessly tell him it's too expensive he begs to differ. I guess it's like the used car market. Every house is unique and will sell to a buyer willing to pay what it's worth to them. Frustrating for me because years ago I could have bought into similar neighborhoods but now I'm priced out despite my high five figure income.
Posted by: wideeyed | June 11, 2009 at 12:16 PM
You certainly have to hand it to the sellers, who did quite well, but I have never understood why anyone would be wiling to pay >$200k for a place in Pasadena north of the 210 and west of Hastings Ranch.
there are some lovely old houses up there, it's true. But they are in close proximity to a genuine, honest-to-goodness ghetto. North Pasadena is not a gritty working-class neighborhood like East LA or Rosemead, it's a real ghetto, the sort of place where there are gangs, transients, drugs, etc.
While a young single person might decide to live in a neighborhood like that, why in the world would a family with children do so?
IMO a good rule of thumb is that when there is a reasonable possibility that you will, at some point, hear gunshots while sitting in the living room, you should not pay more than $200,000 for a house, even if it's a lovely old Craftsman with lots of character and charm. And I am taking high LA prices into account, in the rest of the county places in neighborhoods like that go for five (or sometimes four) figures.
Paying $500,000 -- also known as half a million dollars -- for such a house is absolute lunacy. Why in the world would anyone take such a risk? Certainly the possibility of appreciation doesn't make living in a dangerous ghetto worthwhile; I'd rather rent.
Posted by: Joe Schmoe | June 11, 2009 at 12:19 PM
Now *that's* good investigative reporting - I do hope you are able to get their story, but I suspect it may be the more mundane "job change, gotta move" type of situation.
I'm curious how much this home actually sells for. $580K is quite steep for 1100 square feet.
Posted by: Tim K. | June 11, 2009 at 01:14 PM
Mark G - I think you are wrong. I think most homeowners are hesitant to rent after they've owned. It is in their extreme financial interest to rent for a few years, but sometimes people can't see objectively.
Peter, I think the REAL point of this story should be the wisdom of buying at the bottom of a real estate cycle in California. The mid 90s were a bottom. The early teens will be one again.
Posted by: Danny | June 11, 2009 at 01:27 PM
Peter,
Bravo!! Now THIS is exactly what the readers of this blog want to see, case studies of houses, how the market has changed in particular areas, etc. Please keep us informed on this one. My guess is that it is going to fall out of escrow. Still seems a bit high for the size and area.
Posted by: Hangemhigh | June 11, 2009 at 03:08 PM
I don't know if they are moving up. It is really hard to pull that off right now. They sold their house in only 10 days. It is not likely that they can find and buy another house before theirs closes. Inventory that is priced right is very slim right now. I bet they are moving out of state.
On a side note, I showed a client about 10 condos this week. 8 of them were equity sellers and 2 were bank owned. Of the 8 equity sellers, 7 of them were vacant rental properties. I have seen a lot of former rental properties for sale lately. It seems that the rental market is really bad and a lot of investors are trying to unload the properties that they have owned for a long time. Some of them are willing to compete with the bank's prices.
Posted by: Ace | June 11, 2009 at 04:37 PM
i sold a house with $250K profit a year ago,
and am doing exactly that = trying to understand what to do with all these $s,
they are sitting in the bank, OK, but with Obama printing so many new green fliers, what will those be worth off 3 years down the line?
but with apparent crush expected by the doomers in pricey areas, is it worth jumping in now (not that with my $150K annual i can afford much anyway)?
Posted by: serzh | June 11, 2009 at 04:59 PM
Schmoe - it's not like this area can gentrify either. The zoning for group homes and the low income housing will be there forever. Peter, I was in the situation where, had I sold my house at the height of the bubble I would have just blown those profits on a soon to depreciate house. Overall its better to sell and buy when prices are low b/c at least you save on property taxes. (Though I'm still kicking myself for not selling high and banking the money for a while...)
Posted by: Kosherkrab | June 11, 2009 at 07:01 PM
Joe,
Perhaps you are being too restrictive, "Pasadena north of the 210 and west of Hastings Ranch". If you go north of Orange Grove and east of Lake Ave, it's pretty nice [and expensive]. Very safe district.
Posted by: Wes Boudville | June 11, 2009 at 08:02 PM
@Schmoe - I've lived in Bungalow Heaven, which is north of the 210 and way west of Hastings Ranch, for 7 years, and I have yet to hear a gunshot. Our neighborhood is jammed with young professional families with kids, including my own. I feel comfortable walking my dog after dark, I feel comfortable taking my kids to the park every day, and I'll be sending my kids to our local public school. Whether it's worth more than $200k I won't say. It was worth it to us (and according to recent sales, we could still expect to sell for $120k more than we paid in 2002), but being close to this "ghetto" you're referring to hasn't impacted our daily living or made us fear for our children. Do you drive through this part of Pasadena much?
@ Kosherkrab - I'm not sure where the house Peter's talking about here is, but the group home zoning problems are really more of a problem in county areas like Altadena, not so much in Pasadena.
Posted by: BungalowGirl | June 11, 2009 at 09:12 PM
To those who think of buying a house as investing... "what do I do with my xyz thousand dollars...", I have two questions: can you READ? Do you know MATH?
Joe Schmoe is right to point out the risk... wow!... talk about putting all your eggs in one basket...
and the thing is, not only is housing generally a mediochre investment, with low returns for the risk, unless you're pretty splendid with cash -- you know who you are, you "hot property" customers -- it also requires you to sink your whole life into one highly leveraged investment...
and if you're smart enough to pick a housing market bottom... why aren't you smart enough to pick a Google, or a Microsoft, or Wallmart, etc. so you can make ten times the return AND diversify your assets?
it doesn't make any sense to me. owning a home is nice, but not before financial freedom. the only people I can see who benefit from the great american dream of middle class home ownership are the banks (and real estate shills.)
I guess I'm one of those who has maybe been made a permanent renter by this bubble. First, when I got priced out ~2004, and now in light of the giant financial blood-letting in home "equity." If I were so rich I could SPEND a million dollars without putting my freedom and security at risk, I'd buy a house... otherwise... it just doesn't make any sense I can see.
Peter... I hope you do get to talk with those buyers... maybe they know something I don't?
Posted by: dog-walker | June 11, 2009 at 09:16 PM
Danny,
That is a very good point, and I wonder how many people are affected by the psychology of renting after ownership... our house is about to go to market, and we will rent for a while to see how the mid-upper level scenario shakes out. We'll be sitting on a large down-payment as well....
Posted by: mark g | June 12, 2009 at 07:42 AM
Good story Peter. Looking forward to the follow-ups.
Posted by: Ragnar | June 12, 2009 at 08:22 AM
Serzh, you're by far in the best position that I've seen lately to do what ever you want,sitting on $250k and a $150k income....sweet, conventional wisdom would probably say jump in now, but because as individuals we're all unique we all have different needs look at all your options and weigh it out. If you see something that you must have understanding that it'll drop in value a yr. from now then go for it ,if you want to wait then do that.
Posted by: Nelcisco | June 12, 2009 at 09:00 AM
Re the psychology of renting after selling:
When we sold our place and took a time-out to rent, I could tell my father and some aunts/uncles thought I was hiding some sort of financial distress. It was unfathomable to them that a respectable, succesful person would not want to always be a homeowner.
Posted by: Peter Hong | June 12, 2009 at 09:21 AM
Peter,
That pressure says a lot... and of course it's all around us... and most of us must feel it... I know I do... I was always one who just assumed that when I reached a certain point in life, I'd own a house...
I made a little money (in my 20's) and invested it, it turns out, reasonably well, with the intention of buying a house down the line...
which I'd always assumed I'd do with cash, btw...
then this bubble came... and I got priced out... and now that it's begun to recede, and after witnessing such extreme and unpredictable swings in value, I no longer feel comfortable with housing as a prudent way to allocate so much cash. I think of competing financial instruments. A million dollars (well, and relatively securely invested) should be able to produce a nice little stream of income.
So here's the interesting question: how will the losses, foreclosures, retirement wipe-outs, etc., we've seen (or suffered) effect the pressure you (and many of us) have felt? Will this fantastic bubble and crash change people's assumption?
It's changed mine. Anyone else?
Posted by: dog-walker | June 12, 2009 at 09:51 AM
You can't call yourself a successful real estate investor, shrewd businessman or fiscally responsible family man/woman if you try to speculate in this market.
It's safer to see that half a million dollar mortgage you had no problem signing up for two years ago, not as a gateway to wealth, but as a 'Oh my god, what have I got myself into, what was I thinking' 30-year long debt servitude.
I think and hope that that prudent attitude will save you from many a financial folly.
Posted by: MyLessThanPrimeBeef | June 12, 2009 at 09:51 AM
Peter,
The purchasers are called "Knife Catchers." 500+ for a 1BR apartment? You will be embarrassed to call this a fair trade in 2012.
Mark this post, kiddo.
Irish Catholic Rent Control Inhabitant, Santa Monica, CA 250K+ Household Income. Multiracial family of 3.
Posted by: Therewillbeblood | June 16, 2009 at 11:03 PM
Mr. Hong,
When you sold to rent, they were aghast because they are old school. ie. They have not attended school. Send them to a meaningful re blog like Patrick. This one is more fit for your disapproving relatives. No new info here.
Sorry, but Viles does actually run cirlcles on you. And please don't censor my comment.
Joe, Screenwriter, Dad. Brentwood.
Posted by: Holllywood | June 16, 2009 at 11:07 PM
@ Joe:
No need to apologize. Sorry if you have been unable to find Peter Viles. His blog is here:
http://originallaland.blogspot.com/
Posted by: Peter Hong | June 17, 2009 at 10:20 AM