Real Homes of Genius: In the Backyard of Countrywide. Today we Salute you Calabasas.
“American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.â€
And boy did lenders provide greater alternatives. In fact, we had Pay Option ARMs, interest-only, 2/28, 3/27, 15 year, 30 year, 40 year, and of course many of these were available via stated income no documentation loans. It would seem that Alan Greenspan did have something right, a traditional mortgage was an expensive way of financing a home since American households had much less money and needed creative financing to bridge this gap between wages and housing aspirations. It didn’t seem like anyone had any fear of repercussions during the bubble and all financial prudence was thrown out the window and any historical measures meant nothing. Why berate this fact? Because it appears we are going back down the same treacherous path. The rhetoric is heating up regarding bailouts and the Fed is becoming more and more embroiled in this mess. It would appear that they are going to pull out all stops to keep inflated prices high. Any of these measures are simply going to prolong the inevitable correction. We either deal with the issue now or face multiple years of deflating prices like
Even the usual Fed karate kick of talking down interest rates and banks coming to the rescue did very little and the market resisted fiercely last week. Mish over at Global Economic Trend Analysis has a great post highlighting this:
“1) Bernanke all but admitted he was going to slash interest rates. The market popped on this news then subsequently gave it all back.
2) Countrywide Financial (CFC) was on the verge of bankruptcy but was bailed out by Bank of
Yes, those Jedi mind tricks are starting to become tiresome on a public that is maxed out and they are ready for some light saber rattling and hungry for some Wall Street comeuppance. What is the use of banks having all this access to credit when the public is struggling to service their current debt?
The Land of Countrywide – Calabasas
Today’s Real Home of Genius takes us to the birthplace of Countrywide, Calabasas
“Stop going for the easy buck and start producing something with your life. Create, instead of living off the buying and selling of others.â€
We became a nation wealthy on trading homes like baseball cards and
Today we salute you Calabasas with our Real Home of Genius Award.
This is a very nice large 5 bedrooms and 2 baths home spanning over 2,500+ square feet. The home was built in 1966 but is in excellent condition. In fact, not much is wrong with this home and all indicators point to a quick sell. Nice location, large property, and excellent amenities. If this is the case, why has this home been on the market for over 5 months? Well in some form of irony, the loans that home grown Countrywide was spewing out are no longer available to potential buyers. Since these are now extinct in many respects, people need to go with more conventional financing much to the chagrin of Mr. Greenspan. Now the absolute primary factor in moving homes is price. Let us take a look at the sales history on this home:
02/12/2003: $649,000
09/29/1995: $275,000
Nothing unusual here. Seems like even in the slow days, this property was appreciating 11+ percent per year. Someone actually thought that we were still following this trajectory:
Price Reduced: 09/10/07 — $1,075,000 to $1,049,000
Price Reduced: 10/05/07 — $1,049,000 to $999,000
Price Reduced: 10/23/07 — $999,000 to $949,000
Price Reduced: 12/04/07 — $949,000 to $899,000
In roughly four months, this home has been discounted by $176,000. A 16% discount in this timeframe in a prime area is actually big news because it is showing that the housing decline is impacting all areas of residential housing (and commercial). It shouldn’t come as a surprise that someone thought this place would fly off the shelf at $1 million. But with the end of alternative financing, it would appear that this place isn’t going anywhere. Aside from price considerations, you need to think of the magnitude of the Bank of America purchase. What is going to happen with many employees in the area? Is this good for local housing prices?
Even at the current price, the seller is looking at a $250,000 profit in the face of the worst housing crisis of this generation. Let us assume you were to buy this home with conventional financing and 5 percent down:
PITI: $6,334 (Assuming $44,950 down payment with current jumbo rates)
There are 23,123 people in the city with 8,350 households. The median income for households here is $107,330. Of course, we realize that many families in the city make more than this; after all the median only shows the cut off point where half the households fall below $107,330 and half are above this point. Clearly, the median income is not going to afford this place short of going Wesley Snipes and not paying any income taxes. We can assume that half of the 8,350 or 4,175 households is now in our eligible household pool. How many of these people already own? How many are leasing? How many are slightly above the median? I wish we had more stats beyond these but the picture is rather clear with these numbers. Currently there are 282 homes on the market in the city. Sales trends are radically declining:
Number of Sales:
Q1 2007: 274
Q2 2007: 150
Q3 2007: 185
Q4 2007: 78
It is also interesting to see the median sale price for this area:
Median
Q1 2007: $836,500
Q2 2007: $875,000
Q3 2007: $1,035,000
Q4 2007: $927,500
The data for sales and media sale price are for Calabasas, Topanga, Agoura Hills, and
How low will prices go?
When will the bottom be reached?
Today we Salute you Calabasas with our Real Home of Genius Award.
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10 Responses to “Real Homes of Genius: In the Backyard of Countrywide. Today we Salute you Calabasas.”
this house is a great example of how much farther down prices have to come, because it’s older (i.e., no teardowns distorting transaction values) and we have sales data back to the mid 90’s (which is how back you have to go to get a sense of what the long-term trendline looks like.
over the past 20-30 yrs, LA real estate has appreciated at a 6-7% annual nominal rate. if we take the $275k selling price in 1995 and roll forward at a compounded 7% rate of appreciation, i come up with a “normalized” home price today of $620k. that’s another 30% down from the current asking price.
the $620k price seems absurd when you look at recent comps, but it actually makes a lot of sense if you think about it:
1. the price is still 6x the median income for the region. using traditional loan standards, a family would need $100k down payment and annual income of ~ $170k per year to qualify. so it would only be affordable for people in the upper half of the local income distribution.
2. the people who bought in 2003 would suffer a *modest* loss of ~5% on their purchase (e.g., ~ $32k). this also makes sense to me. 2003 was a pretty frothy market as well and homes were subject to bidding wars. just because you bought early in the bubble doesn’t mean you won’t be forced to eat a loss if you *have* to sell.
a sign of things to come ….
According to the sales price figures stated at the end of the blog the median home price of the included area has gone up thru all 4 qtrs of 2007…if prices are lowering so dramatically how can the average selling price still be so high??? It was way up in the 3rd qtr and then down in the 4th but still above the qtr1 numbers….sales numbers are way down but not the price..
Laurie, The high end sales float the median of the low end sales, which have stagnated. Thus- the median price goes UP as sales numbers goes down. The higher up the price range, the less affected the buyer is from this mess.
Well, Calabasas was the first place to outlaw smoking outdoors, which coincided directly to the downturn in the market.
I live close by, and have a friend who bought a small house there, and she paid 1.1M, right at the peak of the market, about 2 years ago.
After putting a lot of remodeling cash into it, she had to stop when she ran out of money.
She found that although she wanted to break up with her live-in boyfriend, she had to repair the relationship, cause she need him to pitch in for the 4k mortgage.
Last time I saw her she was looking for work, any work, cause she needed money, and she already missed one mortgage payment.
That was several months ago, sitting there at Starbucks, in the Commons.
I almost don’t want to run into her now, cause I know her situation can only be worse.
I
Doctor – Any thoughts on how the Writer’s Strike is shaking up the local LA economy?
Realtors love to tout the phrase “all real estate is local”. My perception is that the local LA economy is grinding to a halt. The trains are packed with people avoiding a drive commute to downtown and Starbucks has no lines. The malls were practically empty during the holidays. Anyone else seeing this?
@Taylor:
You are absolutely correct. Even with the significant price reduction, this home still has further to go down. It is now a question of looking at local incomes and conventional financing. Clearly the demand of yesteryear was spurred by speculation and easy financing. It’ll be interesting to see how the city and surrounding areas deal with the mortgage fall out.
@Laurie:
As SoCalWatcher pointed out, this is the median sales price. The odd thing is there is always a slight period in a decline when the price artificially increases. Why is this? Well in tighter markets mediocre properties sit and aren’t factored into the statistics (that is why sales are always leading indicators and prices lag). High priced high quality homes will always move thus moving the median up initially.
@whatever you say:
Things will be tough. Many of the financial models assume these high priced areas have either one highly paid person or two incomes pushing toward a high paying household income. Either way, the sociological implications will be large and financially challenging for many. What of the divorces that will occur next year? How is that going to be handled especially when both parties want out and are trying to unload ASAP in a declining market. Financial problems are a large reason for many divorces and California isn’t exactly known as the capital of monogamy. I remember reading a study that during the Great Depression, couples actually stayed together more than the roaring 20s because of economical pressures and scales of economies. When things are feeling good why work anything out?
@J. Pake,
I noticed that the malls weren’t as bad as last year. Although I only have 2 references for 2007 since I despise shopping in the advertising jungle. In regards to the WGA strike I heard, maybe someone can clarify, that the big issue is that management is pushing for a flat $250 payment for a year of hour-long reruns which is far below the current $20,000+ that writers currently get for a network rerun. That seems like a big difference. There is also the issue regarding online media content but the numbers seem so far off that management can afford to wait it out since economically it makes sense to them. Plus some stations like Fox are salivating that American Idol is starting tonight and with no other new shows, I would imagine that they will be raking in the money.
@All:
I’m sure many of you already saw the DQ numbers for the year. No, not Dairy Queen but the DataQuick median price and sales for the month of December. It wasn’t pretty:
LA is down -10.5 percent yoy
OC is down -10.3 percent yoy
Riverside is down -17.8 percent yoy
San Bernardino is down -14.9 percent yoy
San Diego is down -13.1 percent yoy
Ventura is down -11 percent yoy
SoCal is down -13.3 percent yoy
All of Southern California is now in double digit losses. Sales are down -45.3 percent yoy which only means that this trend will continue to the foreseeable future. Until the sales number improves, the only way things are going to move is via lower prices.
Taylor
You wrote “‘ i come up with a “normalized†home price today of $620k. that’s another 30% down from the current asking price.
the $620k price seems absurd when you look at recent comps, but it actually makes a lot of sense if you think about it:
1. the price is still 6x the median income for the region. using traditional loan standards, a family would need $100k down payment and annual income of ~ $170k per year to qualify. so it would only be affordable for people in the upper half of the local income distribution.”
Actually an income of $170,000 is far higher than being in the upper half of income for the town.
$170,000 would put the household in the top 25% of all in the town.
If this house is close to the median price, its got a long log ways to go. Can’t sell 50% of the househouses to 25% of the population.
“Can’t sell 50% of the houses to 25% of the population.”
I would say that sentence right there sums up the entire reason why the SoCal housing bubble was guaranteed to burst. I have no idea why this simple statement was so hard to grasp by many people, but greed does produce a poisonous distortion of reality.
620,000? I’ll give you 300,000 for that house. My hubby and I make great money at high tech entertainment jobs with excellent credit, but really it would be irresponsible to pay more than that for any house in California. When prices get back in that range lemme know. Until then all those overpriced no attic no basement stucco leaky roof thin walled boxes can sit on the market. With rising energy costs and rising school tuitions (we have two kids too…O joy) 300,000 would be way too much for such a long commute….so maybe the price should be even lower. :o)
Isn’t Calabasas where the Menendez brothers are from? I think these houses would sell better if they could take advantage of their geographic location and rename the town Malibu Highlands or Malibu Junction or something like that.
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