Real City of Genius – Substitution effect – Culver City real estate inventory highest since 2008 as median square price declines. Selling bigger homes for less and condo sales dominate.
In a market economy we are fortunate to have substitutes. Having trouble affording Grey Goose vodka? Maybe a Smirnoff will do. Mercedes Benz out of your league? We have a nice Honda for you. In the housing market, we have a clear substitute for buying a home and that is renting. Yet some have a massive desire to own especially in some niche markets and a cheaper substitute includes condos and townhomes. Culver City has seen this substitution effect take place since the housing market tanked. This kind of city is the next to take a dip in the housing adjustment. The subprime market has taken it on the chin and we need to only look at places like the Inland Empire to see what a real correction can bring on. Culver City is a desired location but doesn’t have the brand that a Santa Monica or Marina Del Rey carries.
Today we salute Culver City with our Real City of Genius.
A Condo Will Do
The substitution effect is taking charge in Culver City. We need to look at June sales to see the trend:
In June Culver City had 11 homes sell but at the same time 22 condos were sold. Before someone tries to say that all cities operate like this, take a look at Diamond Bar (31 homes sold and 25 condos sold). So why the big divergence? Well for one, the median price of homes sold in Culver City for both zip codes were $605,000 and $775,000. At the same time, the median condo price was $330,000. There are two markets within one city here.
The shift in the makeup of sales has caused the median square foot price to plummet:
The cost is falling because the shift in real estate sales for Culver City is being dominated by condos. Home sellers are still holding out for insane bubble like prices and the amount of homes selling is falling. That is why inventory for Culver City is now at a high not seen since 2008:
What exactly is happening here? I think Culver City is one of those markets that can draw a large number of people that one would call “aspirationals.” You know what I’m talking about; these are the people that registered their iPhone cell numbers out in the 310 while living in an apartment or go to fancy restaurants and simply order off the appetizer menu. Since owning has a strong pull even after the market implosion we have seen in California, many are willing to skip owning a home and substituting it with a condo. At current prices, you have a good amount of people willing to pay and given easy FHA insured financing, buying a condo or townhome isn’t so tough.
I find this trend incredibly fascinating because it signifies a tipping point in the market. People are starting to pull back on buying the incredibly expensive homes thus home inventory is up while buying up the condos at a much brisker pace.
Let us break down the current market:
MLS listed inventory
Condo/townhomes - 97
Single family homes - 63
We have 4.4 months of condo/townhome inventory and 5.7 months of single family home inventory. We shouldn’t forget about the shadow inventory here. 173 homes are listed as distressed properties with the bulk not making it to the MLS. Of the distressed data we have:
63 single family homes
88 condos and townhomes
The other properties are a mix of commercial, multi-unit, and land. But you can see that we still have a large number of homes sitting in the back for an area like Culver City. If we want to understand why condos are dominating sales we should probably look at the income data for the city:
The median household income is $70,568 with an average household income of $86,694. The current median home price for single family homes just doesn’t compute with current income data. To purchase the current median priced home a family would need an income of $200,000 or more per year. Only 6.8% of the entire area can go for that level of price. And what does $885,000 buy you in Culver City?
This is a 4 bedrooms and 3.4 baths home. It is listed at 3,377 square feet so it is certainly a good sized home. Yet does this look like an $885,000 home? It has been listed on the MLS for 428 days and has a sale pending. People are still willing to buy in these markets but again, the bulk of the sales are coming from lower priced units. This is similar to what happened in lower priced markets back before they tipped over. You see expensive units stall and sit idle while inventory builds up and lower priced units move. You can’t stop the momentum unless incomes double overnight. What other markets are seeing a big jump in condo sales?
Today we salute you Culver City with our Real City of Genius Award.