2010 West Hollywood Market: Single Family Market Off 29% From 2007 High; Median Condo Price Unchanged from 2009 to 2010. Establishing the Foundation for a New Market Bottom?

West Hollywood  - Single Family Market
In 2010, the single family home market in West Hollywood took another step down in price to a median of $779,000.  Since the market peaked in 2006 - 2008, the median sale price has declined 29% and now stands at 2003 - 2004 levels.  In our opinion, the market that has spiralled downward for the past two years is establishing the base for a new market bottom. But for now, the only apparent trend is a steady decrease in median price.

In the long run, West Hollywood real estate has been an excellent investment.  Since 1996, the median sale price of a single family home in West Hollywood has increased 214% in value, from $248,000 to $779,000.  Consider that the S & P 500 has increased only 86% during the same time. Also, consider that with a $50,000 downpayment in 1996 (and a 30-year fixed loan), a buyer of a median-priced home in West Hollywood by 2010 could have created $625,000 of equity, an outstanding return by any measure.

Timing is everything, and the short term story differs greatly from the 14-year "buy and hold" strategy portrayed above.  The value of a home purchased in West Hollywood after mid-2003 is likely below the original sale price.  The market appears to be in the process of bottoming out, and these homeowners in the future have the potential to recoup their losses, but for now they're "underwater" with regard to their purchase price.

What led to the huge run-up in prices in 2005 - 2008?  Easy jumbo loan financing, which allowed buyers to obtain loans greater than $729,750 with stated income (affectionately called 'liar loans'), fueled the buying boom during these peak years.  During this heyday, a buyer could obtain a loan to purchase a million dollar home with no verification of income or assets.  Is there any surprise there was a real estate bubble?

Now, jumbo loans are nearly impossible to obtain, and financing a million dollar home entails putting down $270,000 and obtaining the maximum $729,750 "jumbo conforming" loan.  Since a 25%+ downpayment is required to make this purchase, the buyer pool has dwindled vs. the days when little or no downpayment was required. 

The 29% drop in prices since the boom reflects: (1) borrowers' weakened financing following the economic crisis; (2) greater downpayment requirements for some loans; and, (3) tightened loan underwriting guidelines, which has eliminated many aspiring buyers from the purchasing pool because they can't qualify for a loan.

West Hollywood  - Condo Market

The condo market in West Hollywood, like the single family market, experienced its peak in 2006 - 2008 and has seen declining prices since that time.  In 2007, the median price of a West Hollywood condo was $620,000; in 2010, it stood at $499,000, a decline of 20% in median value.

Because of their lower price point, sales of West Hollywood condos were much less impacted by the unavailability of jumbo loan financing than single family homes.

One important point to note is that the median price of a West Hollywood condo was virtually unchanged from 2009 to 2010 (a decline of a mere $1,000).  We see this as an indication that the West Hollywood condo market has now stabilized.  Barring huge increases in interest rates, will believe there will be no further price declines in 2011.   The pervasive, negative buyer sentiment is perhaps out of line with a market that is recovering.

We hate to mix metaphors ... but we'll do it anyway.  Our assessment of the West Hollywood condo market: we are far from "out of he woods" but buyers should now finally be able "to see the forest for the trees."

Touring Architectural Homes in Venice, California: Minimalist Aesthetic Meets Maximalist Price Point

This is a post by Luke Jones.  Living in Venice one can’t fail to notice all these funky looking buildings and be curious to know what they’re like on the inside – so today I checked out the latest Architectural listings on the Venice market.

The first thing that struck me about this style of home is that there are so many things you can get wrong! Firstly, it’s easy to make an architectural home feel cold and sparse. It’s also easy to make it feel cluttered or unfinished. Unless you are a minimalist or are neurotically tidy, or unless you have a bold and radical style throughout, there’s always going to be things that don’t quite fit it. Even down to the shampoo bottles in the bathroom!

So, the first thing to think about when eyeing an architectural home is whether or not your lifestyle will suit this kind of home. The second thing that struck me about looking at architectural homes is that, for all the flair and imagination that goes into this style, it's actually pretty standardized these days. After all, there’s only so much you can do with brushed concrete! The real beauty of an architectural home is how it's possible to juxtapose your own life within the framework of an open space, showcasing your own style to the maximum effect…

The first property in Venice I looked at was the enormous and imposing 333 Indiana Avenue. From the outside, it looks like a rather drab apartment building but as soon as you enter through the heavy doorway, you immediately notice the sense of scale. The first floor, with concrete flooring and a basic kitchen that was obviously put in place by someone who had no intention of cooking, feels like a professional showroom. The master bedroom is bizarrely situated just off the kitchen on the ground floor and apart from the huge entry way / gallery space, and there is surprisingly little room to actually use for dining and seating. Upstairs is the "money shot": a massive open plan studio space with soaring 16 ft ceilings, exposed metal beams, maple floors and skylights – an incredible live-work space. This home is ideally suited for persons with an extensive art collection or someone who wants to work from home. And you’d have to be pretty successful – at $3,350,000 this property doesn’t come cheap. But for the square footage (5,632 ft), it's actually comparatively well priced.

The next property I checked out was at 135 Brooks Avenue. Situated on the busy intersection of Main and Brooks, this corner lot has a more homey feel to it than the first one. The open plan living room / kitchen is quite small and, although it has large windows stretching to the ceiling, since it’s on a small lot in a crowded subdivision, it feels a little gloomy. However, it does have high vaulted ceilings giving an impression of scale. A curiously dark stairwell leads up to the second floor where you have two guest bedrooms, one of which is more suited to being a decent guest bedroom benefitting from large windows looking onto the quieter alley way below and a sizeable walk in closet. The smaller of the two guest bedrooms would be fine for a queen or adequate as an office / study. The master bedroom and bathroom is on the third floor and features a large, walk-in closet and an open-plan feel with curved walls that sweep onto a small, functional roof terrace. This attractive and funky home feels like a starter pack for someone who wants to dip their toe in the architectural lifestyle without having to contend with big open spaces or imposing architecture. I think it’s overpriced at $1,595,000 or $844 / sq ft, but with parking for 3 cars and with 3 bedrooms, perhaps one could rent out a room to a lodger.

Next up is a condo with a town house feel. Based on another busy intersection (Brooks and Pacific), number 49 Brooks Avenue is a large, bright unit in an eye-catching condominium block. A stone's throw from the boardwalk, this has an urban feel to it (urban by Venice standards, that is), but with your own entrance, you’d forget that you’re in a shared co-op. There is plenty of natural light throughout, and there is a bright gourmet kitchen with a large island as the main feature of the room. This is an entertainer's house, no doubt, and the entire layout and vibe feels very welcoming, fresh and breezy. The bedrooms are well-proportioned and the master bedroom has a fabulous corner window that looks towards the sea and the mountains. Furthermore, the unit features its own private balcony with 360 degree views and a wood-burning fireplace. With parking onsite for two cars and a clean, modernist exterior, this certainly has the feel of a single family architectural home but with the price of a condo. At $1,475,000 or $636 per sq ft, this is a bargain compared to the previous property at 135 Brooks. The big drawback is the proximity to the busy street -- but that only adds to its urban feel.

A little ways down pacific and set back from the busy street on a quiet walk street is 35 20th Street. At $1,295,000 this 2,000 sq ft lot is currently divided into a duplex giving some rent return on your investment. But this is where the good news ends. This very peculiarly designed architectural home feels clustered and confused. Whilst it features a nice front yard on a peaceful walk street and even though it fits in perfectly with all the other eclectic homes in the neighborhood, it all feels very over designed. Strange cabinetry at odd angles make rooms feel cramped; tiny bathrooms with barely room to swing a cat feel like they’ve been designed without any thought for luxuriating; and, annoying metal spiral staircases that creak and groan as you walk noisily up them make the place feel like you’re in a half-finished experiment. Also - and this is an observation of mine as someone who used to live on a walk street – as nice as it is to have the pedestrian walk street on one side, you have to remember that you’ve got the drug ridden, trash-can strewn, urine-smelling alleyway on the other side. No, sadly this one wasn’t for me. But then again, if living close to the beach with all the action in a quirky, crazy home is your cup of tea – check it out.

So, feeling a little dismayed, I made my way back home via one last property on California. Another world from the beach side of Venice, this is towards the Lincoln end of Venice. Immediately seeing that it was bang opposite a busy high school, I was expecting the worst. But lo and behold, it turned out that this was the best home I’d seen all day. No 844 California Avenue, with 3 bedrooms, 3 baths, 2 car garage, nice yard, roof deck with 360 degree view and warm open layout with distinguishable areas makes this an all-in-one hit and at $1,445,000, comparatively a bargain in relation to the previous property that had so many things wrong with it. This stunning home has a warm, inviting feeling with impeccable style. The rooms are well-proportioned and with bright, maple floors throughout there’s both an air of continuity but also individuality. The drawbacks to this property are: (1) the proximity to the school, which would be a noise nuisance during the week; (2) heavy traffic; (3) the fact that it is not situated in the heart of Venice but nearer hectic Lincoln Blvd.  Weighing these downsides against the sensible pricing and terrific design and proportions, I think this architectural home perfectly achieves the balance of modernism, space and warmth.

Real Estate Predictions 2011: A View from Los Angeles - Panic, Capitulation Plus a Whiff of Despondency?

Best wishes for 2011.

We are certain this is going to me another incredibly exciting year in real estate in which the war-torn, battered and weary sellers are embattled with enterprising, arriviste, opportunistic buyers, creating price and terms clashes of epic proportions.

2011 will be the 2012 of property transfer, in which short sales, foreclosures, receiverships, bankruptcies and various and sundry other forms of financial and legal "work-out" are the norm rather than the exception.

2011 may even be the year of Capitulation (see the Sentiment Cycle above).  Long-term bearish sentiment has left not one optimist in the room -- time to "throw in the towel."

2011 may even possibly be the year of Despondency ("how could I have been so wrong?"), the inflection point setting the stage for the next cycle of price increases.

But maybe not.  2011 may have a whiff of Fear, Desperation, Panic ... and dare we say, Hope?

In whichever direction the market heads, Adner Realty Group will be ringside, ready to chronicle the Los Angeles real estate scene.

And how did our 2010 predictions hold up?  (See our December 31, 2009 post "8 Real Estate Predictions for 2010 - Kissing the Bottom Goodbye - From Panic to Hope and Beyond") We'd give ourselves about a 6.5 out of 8.  To recap:

1. Interest rates will rise.  WRONG.  Our biggest mis-prediction.  Interest rates fell to an astonishing 4.375% for 30-year fixed loans, a low since records were first kept 40 years ago.
2. The bottom of the market for first-time buyers will soon be past us. RIGHT! Prices in 2010 were higher than the ultra-low prices of 2009 when buyers fled the market en masse.
3. Prices will continue to decline on the high end ($1.5 million +). RIGHT! Jumbo loan financing was scarce, and the abundance of short sales and foreclosures drove the market down.
4. Foreclosures and short sales will become pervasive in all segments of the market. RIGHT!  Just because a house costs $2 million doesn't mean it's immune from foreclosure.
5. Over-priced new construction will become less so as developers are forced to chop their prices. RIGHT!  The only way sellers could move the inventory was through red ink.
6. Getting a loan will be tougher than ever. RIGHT! Underwriting standards tightened  considerably leading to delays in most closings.
7. Investors will benefit as properties trade hands at generational lows.  HALF RIGHT.  Multifamily prices are off their lows; industrial prices are flat; but hotel and office sectors have not attained market bottoms.
8. Real estate will begin reverting to its role as a safe, predictable asset class. RIGHT!  Heard any "get-rich" schemes in real estate recently?

We live in remarkable times, in which lows attain new lows, dire gets direr, conflicting indicators jam the airwaves and defy easy interpretation.  Although these times seem extreme, Southern California real estate has a century-long history of careening booms leading to colossal busts.  This remarkable time happens to be "the Big One".