El Segundo Bubble

Living in a small seaside town where reality has fled

[elsegundobubble]

A Blog about El Segundo's inflating real estate bubble

I had to move to wordpress. come find me there.

https://elsegundobubble.wordpress.com

[elsegundobubble]

(CRMLS) Sold: 3 bed, 1 bath, 1103 sq. ft. house located at 933 Loma Vista St, El Segundo, CA 90245 sold for $879,000 on Jan 19, 2017. MLS# SB16715027. Bright corner-lot home in a great neighborhood. Newly ...

Closed at asking. $879K for 1100 sqft on a 5000 sqft lot. The tiny house movement is alive and well in El Segundo. All hail HGTV for selling people on the idea! And shocker, Bill Ruane repped the buyer and seller, good for $44K commission!

With 20% down someone is writing a check for about $5000 a month to “own” this house. 

That’s about $4.50 sqft while rents in the area at the ridiculous high end (like 533 Concord) is at $3.18/sqft. (more on Concord later)

 There is no economy or situation where this is a good decision. There isn’t enough tax write-offs in the world to make this work. Plus the fact that you are paying for a tiny house that only a small handful or buyers are willing to own. Do you want to live in a home with one bathroom? 

The only way this makes sense is for a flip. But even then the math gets really bad. To add square footage you should estimate ~$400/sqft. There’s also limitations on the size of your footprint on the lot so let’s say you add a master suite. Let’s call is 400 sqft x $400 = $160,000. But wait, you need plans, permits, contractors and if you are lucky 12 months of your life. Add $100K for overages, plans, etc... plus the 12 months of mortgage payments ($60K).  No intelligent flipper is getting involved in that nonsense. 

Then there’s the history on zillow to show you what it’s really worth. In 2013 it was renting for $2600/month. Let’s say you have a greedy landlord and they managed to get 10% per year rental increase. The 2017 rent would be ~$3800. Even if we call is $4000 you are dumb for dropping $175k and spending $5k/month. 

[elsegundobubble]

The top 15 cities in America where you can live like royalty on a $60,000 salary

If one of your New Year's resolutions is to live better in the year ahead, that may simply boil down to where you choose to live.

Southern California is VERY Sticky. 

I have had thoughts of moving more often in the past couple years than at any other time in my 20 years in Los Angeles. Angeleno transplants don’t tend to leave. That’s why there are so many fucking people on the roads 24/7! The weather, the ocean, the vibe, work, family....the list goes on. 

My work is here and I married a local girl with family both in town and in Northern Cal. I don’t know much about the cities in the above noted story (I do not want to live in Detroit) I hear great things about Tennesee and the Carolinas. But with young children and ties to the area I couldn’t leave even if I wanted to. My wife would never go for it. 

But for those of you that do not have the same geographical handcuffs that I have maybe it’s time to save a little extra for your relocation costs. 

There are 570 three bedroom homes for sale under $100K in Memphis. That’s a $750 mortgage with $20K down. Fuck that do FHA with about $8K out of pocket. Think about that. For what we would pay $1 million in El Segundo you can have for a tenth of the price. I’m not vouching for neighborhoods, crime, location but with property prices that drastically different you walk a little taller not having a $6000 mortgage payment or $4000 rent payment. (just take off the Hillary sticker)

[elsegundobubble]

A Blog about El Segundo's inflating real estate bubble

Gonna move to wordpress. Come see me there

https://elsegundobubble.wordpress.com/

[elsegundobubble]

You Greedy Mother Fucker!

When I wrote about the rental Armageddon in town in this post I mentioned the house at 533 Concord not knowing the address. Well what turned out to be a freak-out fest on facebook with people stepping over each other for information on the rental let to greedy fucking capitalism. 

$5000/month for a 1500 sqft house. 

FUCK YOU!

The bread crumbs lead me to Joe Yocum a contractor in town that owns Concord and at least one other house in town (The power of the internet is scary). 

So good ole Joe sees the feeding frenzy, his phone is ringing off the hook and turns it over to Kirk Brown (a local realtor) to manage the listing. They settle on $5000/month.  The original facebook post was 12/30/16. And we sit here towards the end of January with the listing just now popping up on Zillow.  Guess what happens when you try to gouge people? The property sits. Guess all those people chomping at the bit weren’t interested at $5k! When I went back to look at the original post on facebook someone had already poked fun at the price with the following comment.

This place just went up on Zillow, $5,000/month! And it does not come with a maid and butler. That's over $1,600 per bedroom and it has not been recently renovated. It has tile counter tops in the kitchen, you know, the kind that are impossible to clean.

Yet some desperate family will feel that this is there only option and they will pay $5000/month and then that’s the new price for the next landlord with a vacant 1500 sqft house. What the previous renter was probably paying $3500/month for is now 42% higher. Even if they were paying $4K that’s a 25% increase. 

1. Do you want that asshole as your landlord? 2. You need an annual salary of $150K to qualify but then we are back to that living paycheck to paycheck math.  3. FUCK supporting greedy people that are willing to step on people for a few bucks. We have enough of that at the highest levels of our government we don’t need that in El Segundo. 

Fuck Joe Yocum. Fuck Kirk Brown. Both are residents of El Segundo gouging would be or current residents.  It’s like they forgot where they live and how small a town this is. 

Gentlemen, Karma is a bitch. 

[elsegundobubble]

Q4 2016 Update

I got a flyer on the doorstep with stats for SFH sales in Q4 2016. 17 homes closed in Q4 and although I don’t have it in front of me I’d say 60-70% of those homes closed under asking. 

It may not be much but but a 2-5% savings is better than seeing homes closing “as-is” above asking. 

I’ve been writing a lot about these crazy asking prices. Every time I think the mania is taking a break we get a new sense of wackiness. Maybe I’m wrong. Real estate could go up ~5% forever. That $1.2 mil “livable” home will cost $1.26 next year and rates are going up so act now! It will be $1.32 mil in two years and you’ll have $100K in equity!

I could go on and on about these greedy real estate agents but it’s just part of the supply and demand equation. It makes me angry seeing these agents price homes higher and higher. It also makes me angry to read about 9%/year rental increases and it makes me angry to see how many homeless tent towns are popping up all over LA but it’s just a symptom of the disease. 

How does this end? 

I read an article comparing President Hoover to Trump. A rich business man coming in at the peak of a stock market bubble with promises of protecting american business with tariffs and infrastructure spending....The bubble popped, tariffs backfired and the great depression set in. Could we repeat that horror? 

[rethinkfinances]

History Repeating Itself? Toronto's Long Record Of Housing Busts

No, house prices don't just go up forever.

If true you could be about to loose 40% to get back to “normal”

[kimblecharting]

Different this time for stocks and bonds?

My mentor Sir John Templeton (founder of the Templeton Funds) used to share that the four most dangerous words in investing are; “It’s Different This Time!”

Below looks at long term charts on the S&P 500 and the yield on the 10-year note (inverted to look like bond prices).

CLICK HERE TO ENLARGE CHART ABOVE

The S&P 500 remains inside of a rising channel for the past 15-years. The yield on the 10-year note remains inside of a 15-year rising channel as well. One thing that is for sure different this time, stocks are at the top of the channel and inverted bond yields the polar opposite.

A couple of things are different between the two from a sentiment perspective at this time.  As the S&P is testing the top of this long-term rising channel at (1), consumer confidence has just surpassed the highs reached at the 2007 peak. On the flip side, as bonds are testing rising support at (2), bullish sentiment on the 10-year note according to Sentimentrader.com, stands at “0% bulls.”

Will it be different this time, in that stocks can break above its long-term rising channel, with consumer very confident?

Will it be different this time, in that bonds will breakdown from this long-term rising channel with 0% bulls?

Will it be different this time? From a global growth story, it would be cool to see stocks breakout due to growth and yields break support, due to the same thoughts.

Always is fascinating to see and discuss, if it will be different this time!!!

[elsegundobubble]

The world of pretend of housing shows on television: Blowing through budgets and simply making it up to induce consumption.

Fake it until you make it. No truer words have ever been uttered especially when it comes to Hollywood and the make believe of reality TV. Just because you put the word “reality” in front of TV doesn’t make it so. Yet people flock to housing shows in mass because it feeds into their

Let’s all move to Waco Texas!!!

[williamemcknight]

Keller Williams agents grew sales volume by 22% in 2016

Keller Williams CEO Chris Heller says there are two things that the company stays laser-focused on every day: its innovative technology efforts, and its bottom line. And he’s pleased with the latest year-end financial results, which indicate success on both fronts …

[elsegundobubble]

A little catching up

Work is hectic and despite the time of year it looks like everyone is fighting to get their listing out and sold in the new year. We continue to see the price of dirt escalate.  Looks like $900kish is the new tear-down price. From my personal experience this is up ~$100-$150K since we were looking last spring. For most people the math only works if you are a developer and have a pocket full of contractors you keep busy. $900K plus $200-$300K and 12 months of your life and 12 months of carrying costs. Or you can just buy the $1.3 mil home and maybe spend $50-$75k. The flippers are out in force. The boo radley house on Acacia and Hillcrest looks almost done. Goes to show you what a good flipper can do in less than six months. From my experience it will take that long to line up a contractor and if you need permits add six-nine months to the time-table. 

228 W Oak at $1.2???? WTF? Big lot, 1400 sqft but apparently Kirk Brown didn’t think it was worthy of photography. We all know what that means.  So it’s your $1.2 mil plus $200K. 

336 Valley St at $1.375 mil. Another listing priced with hope and a prayer. Listed by Andrew Adam at Palm Beach. Big House on a big lot.  Don’t know who the buyer for that house is. I think I put Andrew Adam on blast for being stupid in a previous post.  What does he care, maybe it sells for $1.1 mi, he still gets $27,500 in commission. 

526 Whiting at $1.5mil. Listed by Karen Sellers. A Big House on a big lot on a prime street in El Segundo. Seems pricey but locals know about Whiting. It’s got lots of positives. 

I can’t remember what the count was last time I looked but according to zillow there are 8 SFH in or dancing with foreclosure. Living paycheck to paycheck is a bitch. 

[elsegundobubble]

Not in My Back Yard

In El Segundo there’s a great (although kinda crazy) facebook page for local residents. It’s a private group called The El Segundo Parents Network. It’s crazy because you get people complaining about mindless shit, like dogs poopin on lawns or the guy in the green BWM that runs stops signs. But it’s also a good resource to find out timely info about the city, rentals, schools, etc...

A week ago a local real estate agent posted a question about building mixed use space (live/work/commercial) east of sepulveda. Currently there is no residential space east of El Segundo. In the past couple years we have seen the growth of high end commercial spaces on the east side of town and it's an area where there is ample space for development.

The question that was proposed also mentioned " that a part of the units are leased to lower or middle income families. Giving preference to existing ES residence. To offset the lower rents, the city could allow for less setbacks or larger densities."

 1. That's a fantasy and probably against the law.

2. People freaked the fuck out

 The first portion of the thread was people concerned that this realtor bumped his head or his facebook page was hacked. Genuine concern, as in let's call the police and/or his family. Once the verified that he was alive, well and did in fact post this click-baity question people started weighing in.

In typical Southern California fashion there was a lot of "Not in My Back Yard" comments. Everyone complains about rising real estate prices and rents, the problem of homelessness, lack of affordable housing but no one wants it build in their neighborhood. "You'll ruin the small town charm" "Just look at what happened to Manhattan Beach"

 Then there were comments about the tax revenue, social services and school districts. Genuineconcerns for a made up, never gonna happen proposal. And by never gonna happen I mean give local residents preferential and lower cost treatment.

 But then people latched on to the affordable...and give residents preferential treatment and you got to read

1. How little people know about real estate and economics

2. How scared a lot of people are

3. How prevalent the "Not in My Backyard" mentality is

 There were comments about not being able to qualify for a rental unit that was more than 30% of their income, despite having a glowing rental history and credit score.

 Although this is kinda normal for Southern California let's look at how fucked up spending 30% of your PRE-TAX income is.

You make $100K

Your after tax pay is about $70K (and I'm being generous)

Your monthly net is $5833

30% of $100K on a monthly basis is $2500

 That's the MAX you should be spending on rent. In El Segundo that's might get you a three bedroom apartment on Imperial but most likely just a two bedroom. Look at the math your rent is almost HALF of your paycheck.

Childcare - $700 Food - $1000 Utilities - $300 Car/Insurance/Gas - $500 Credit card bill - $200 

You now only have $633/month left. We haven't talked about other insurance costs, the co-pay for the doctor visit, the new shoes because your six year old keeps growing, the dance class costs, date night, retirement, emergency savings....

 The math is bad. You make $100K and you are living paycheck to paycheck.

Let's pretend you miss a paycheck...The house of cards falls and what's the biggest outlay, your rent. Next thing you know you are behind, get evicted and have little to no savings. You don't have the money for a new deposit....

 If you have a family you can not afford to live in El Segundo. Sad but true. So where does a person go to get a good public education, good neighborhood, low crime? the reality is you go inland or parts of simi valley.

 People are rightfully scared. So are the people that live in Inglewood and see developers, real estate agents and other people looking to capitalize on the coming gentrification.

Does all of this seem normal to you? Yeah it’s common as we have seen it in some form for the past ~15 years but it’s far from normal. 

[elsegundobubble]

Making real estate agents richer every day

I’m excited about this listing! Another bullshit “coming soon” fishing expedition by Bill Ruane. I wonder if these highbrow owners didn’t want a for sale sign parked in their yard for weeks before the listing? I’ll have to drive by. 

Anyway, I’m excited because it may give us a glimpse of the true appreciation of a home. This house was built in 2015/2016 and along with 3 others on the same and street and an additional 3 directly behind on Maple. They were all new construction and the six homes are sized about the same and look similar. This home sold in March 2016 for $1.85mil. 

Even though the price is not the average El Segundo residential price we’ll get to see if a buyer with a lot of money feels that the home appreciated 12% after a year of use! If you were a buyer or buyer’s agent wouldn’t you hammer them close to last year’s sale price? We’ll leave the airport noise and pooh smell up to the discerning new buyer. 

Then there’s the eff up with the listing price. In Zilow you can see they started at $2,049 but then bumped it to $2,075. 

[elsegundobubble]

(i-Tech MLS) For Sale: Vacant land located at 326 E Maple Ave, El Segundo, CA 90245 on sale now for $973,000. MLS# 316008615. Great opportunity for developers or owner users in the heart of El Segundo. Fully p...

Piece of paper and empty lot gets whopping 2.6% haircut. 

Don’t be fooled like so many anxious buyer. The price is for a level dirt lot and a set of approved plans for a 2500 sq ft home. 

Let’s just guess that it will take $300 sqft to build and if you are lucky 12 months. You drop a mil, spend $750K and a year later you have a $1.7 mil home. Unless there’s overages, or you opt for the nice counter-top, or better landscaping, or it takes longer than 12 months....

Makes perfect sense. 

[elsegundobubble]

This is a list of all of the rental listings in 90245. Don't forget to use the filters and set up a saved search.

Rental armageddon in El Segundo. Some landlords want good tenants that are willing to stay and take care of their home, others just want a body that maximizes the income they make. 

Here are the three rental homes active on Zillow. 

400 Kansas St - $3.35/sq ft - Tiny 3/1 - 1076 sqft

527 Penn St - $1.57/sqft - 3/2.5 2926 sqft w central air. 

533 Concord St - $3.18 sqft - 3/3 1574 sqft

The funny thing is that Kansas only has one photo and it looks like your typical rental house (kinda crappy). 533 Concord is the house I wrote about last week and the rent is $5000 (I’m guessing the previous renter was in the $3500 range). 

527 Penn is the nicest, the biggest (almost 3000sqft) and has the best photos. 

Who do you want as your landlord?

[elsegundobubble]

Everyone is worried

I had a conversation the other day with a friend that lives in Mt. Washington. For those of you who don’t venture too far east of the 405, Mt. Washington is an area around the 5 and the Glendale freeway close to Eagle Rock. It’s part of the gentrification that is spreading from Eagle Rock. Can’t afford eagle rock? You start to venture to Mt Washington, Glassel Park and if you can’t afford that you look in Highland Park. In his area he’s seen prices escalate, the local small shops get pushed out for hipster juice bars and restaurants….new restaurants and people attract new interest…rents and home prices go up…working and lower class people get bumped out.  He builds equity and looks to move to a nicer area. It’s the Southern California two step. Buy what you can barely afford, watch the price go up, take your gains and move to a better area or bigger house.  

In lower class areas with bad schools, higher crime, graffiti and more brown people we call it gentrification. Not sure what the word is here in El Segundo but the premise is the same. If you can’t afford to keep up with the crazy real estate inflation you will eventually get bumped out.

I reading a frightening post on the El Segundo Parents Network where many residents expressed their fear that they are getting priced out of El Segundo (it’s not just a fear it’s reality).

Some of it sounds like whining and the belief that people deserve to stay in El Segundo because of their parents or jobs or that they have been here for a long time. Tell that to the Native Americans.

My point is the same thing is happening all over LA…all over southern California, Nashville, Dallas, Portland…. the list goes on. Blame the fed and their cheap interest rates.

Want to know why so many people in the Pacific Northwest hate people from Southern California?  Because we walk in and see nice houses for $400K and don’t mind throwing an extra $50k to win the bidding war because it still seems cheap. We win, the local loses…. Notice the No California Sticker on the sign? It ain’t no joke.

We will continue to see people get priced out of our area and to many that’s frightening. Maybe I’m wrong, maybe silicon beach and SnapChat and Facebook will continue to drive prices higher, forever, exponentially…..

I could be wrong, it very well may be different this time.  Remember MySpace, friendster, the tech bubble, the real estate bubble….

[elsegundobubble]

Real Estate Prices Are Set at the Margins

I’ve written about this before but after some latest bat-shit crazy listings I felt like it needed revisiting. 

Prices set at the margins means that it only takes one sale to set a new market price. 

Some dumb-ass wants to pay $1000 sqft for a livable fixer upper and now homeowners and uneducated real estate agents want to scream - “ Hey, that sold for $1000 sq ft, mine is as good or better, I’ll ask $1000 sqft too” 

Other than seeing and comparing the homes the latest sales comp is kind of meaningless. It just means that Joe was willing to pay $X to buy they house. Maybe Joe’s wife is 5 months pregnant and they have lost out on four homes? Maybe Joe just moved into town and has had his family in a tiny 2 bedroom apartment for 13 months and has to buy a bigger home or he’ll kill someone?

We don’t know. 

Let’s take a look at a townhome for sale:

887 Washington St. 90245 2bed/3bath 1265 sqft. HOA only $265 - Listed at $675K yet zillow’s bullshit Zestimate is $600k. 

173 days on! Started at $700k with one price drop. I guess they don’t want to sell it. 

But here’s where it gets weird, there are several comps in the same complex.

867 Washington a 2/1.5 bath for $620k in December. 

863 Washington a 2/1.5 sold for $700k in May 2016 

851 Washington a 3/2 with an additional 300 sq ft also sold in May 2016 for $760k

Funny enough this is an example of the price being set lower by the margin sale. $620k is now the price of that condo. Like it or not. Yes, the one that closed at $620k wasn’t as nice as the one currently listed for $675k, but it’s nothing $10k in paint, carpet and cabinets couldn’t fix. 

867 Washington took six months to sell, started at $689K and it took a 10% drop to get the deal done.  With two units in the same complex for sale it looks like one cut the legs out from the other.  

Don’t let the lack of supply and the mindset of idiot buyers determine what you think the value of a home is. Yes, supply and demand dictate the price, but if supply and demand are so out of wack that the prices seem wrong maybe you should sit this one out?