Flush with Equity, Bursting with Hubris

Address: 4315 Broadway, 90803
Asking Price: $599,000
Year Built: 1922
Size: 2 beds, 1 bath, 1,254 sq. ft.
$/Sq. Ft.: $478
Purchase price: $375,000
Purchase date: 8/2001
MLS#: P641302
On Redfin: 345 days
Down Payment: $120,000
Monthly Payment: $3,200
Income Requirement: $171,000
Description: Rare affordable Spanish Belmont Heights single story home with nice rear yard. Close to Belmont Shore shopping, dining, beach with easy parking. Beautiful living-dining room area with hardwood floors, some newer double pane windows in living and bedroom, laundry room off kitchen, remodeled kitchen and bathroom. This is worth seeing.

"affordable"?

Guess that depends on your definition of "affordable." A monthly payment of $3,200 requires an annual income of at least $171,000 to realistically afford this lil' buddy. Hmm...the median income in this zip is (a healthy) $78,405. Wow, you need to make 2.2 times more than the already pretty high median income to afford an average median property.

Plus, you've been collecting MLS cobwebs since last summer, so clearly your definition of "affordable" doesn't quite match that of potential buyers.

I love when realtors gush over “newer” improvements in a home. Hey, I’m selling my car with a “newer” tank of gas. I last filled it up three years ago then parked it, but I’m sure it’ll run like a champ.

Plus, there are only some “newer double pane windows.” Way to go, cheapass. Is there anything chintzier than mixing new windows with the old, tattered originals? I realize double-paned windows are expensive, but replace them all or don’t even bother.

And, sorry dude, but the last time that kitchen was “updated,” Jimmy Carter was kickin' it in the White House.

Hey Brit, how do you feel about those floors?

You’ll notice there are no photos of the “updated” bathroom. In a home with only one baño, it better damn well be impressive, and you'd better damn well include a photo of it. I have a feeling there’s a distinct reason why this place hasn’t sold in 345 days. It starts with B, ends with M, and isn’t Bacchanalianism.

But the bathroom isn’t the only reason this place is about to celebrate its one year anniversary on the MLS. Check out the cocksure, defiantly stubborn, I-am-a-real-estate-genius-and-entitled-to-my-bubble-equity pricing strategy:

Jun 09, 2008 - Listed $749,950
Aug 18, 2008 - Price Changed $724,950
Dec 04, 2008 - Price Changed $699,500
Mar 06, 2009 - Price Changed $674,000
Mar 30, 2009 - Price Changed $649,000
May 15, 2009 - Price Changed $599,000


By swooping up this place in ’01 for $375k, the seller has stacked up a ton of equity. So, really, it’s no surprise it's taken him so damn long to price this thing within 20 miles of reality. He clearly wants to squeeze out every drop of profit.

But at what cost?

Given the awesome neighborhood (which is clearly getting to his head), he probably could have found a buyer for $599,000 in June of 2008. Instead, his original asking price was an absolutely ludicrous $750,000 (almost $600 per square foot!) for this conspicuously non-upgraded shack!

And ever since this seller first graced the MLS with his "rare" presence, he’s been dicking around with pathetic 3% price reductions and leisurely chasing the market down. It was only recently that he dipped below the stratosphere.

The going price per square foot in this zip is about $430, so he’s getting there. But if I were him I wouldn’t take a gamble on this economy suddenly getting much better. I’d start getting aggressive and try to preserve the substantial equity before it all evaporates. Pal, you're still going to walk with a bunch of cash, so stop with the bull-headed greed and lock in those profits while you still can.

Yo, Chef Ramsay, what say you about those curtains?

I know housing bulls and Long Beach Dreamers like to say Belmont Heights is “immune” but the exact opposite is true. Yes, there are more established, equity-rich owners in the Heights compared to other 'hoods, but there are also a lot of wannabes who had to take out liar loans or could only afford the minimum payments on their Option ARMs to squeeze in there. The inevitable implosion of those loans and the resulting increase in distressed properties (although probably much smaller in number than most neighborhoods) is going to put significant downward pressure on prices.

Low-end properties are close to the bottom, but it’s the mid- to upper-tier properties like this one that are really going to be hurting for buyers in the upcoming months and years.

Why? Because the "move-up buyer" is practically extinct. Think about it. During the bubble, you bought a starter condo, lived in it for two years, then sold it for a big profit and rolled that money into a bigger place, maybe a small detached home. You lived there for a few years, sold it for a profit to another move-up buyer (who just sold his starter condo), and rolled that money into an even bigger house after selling your detached home to another move-up buyer. Wash, rinse, repeat.

The problem now is that older people on the verge of retirement (Baby Boomers are a huge demographic) typically no longer need the big homes in which they raised their kids and are likely to actually move down into smaller, cheaper homes and condos in the coming years.

And the first time buyers getting into starter condos now will continue lose value before we hit bottom, which will put them at a monstrous deficit when home values finally begin to slowly appreciate again (if homeowners are lucky, appreciation will track inflation for quite a while--but the days of 5, 10, or 20% annual appreciation are dead for generations).

Furthermore, wages have been stagnant for some time, which used to be the traditional mechanism of moving up before irrationally exuberant home appreciation took its place during the last few years. This means entry-level buyers are stuck and won’t be moving up into larger, more expensive, detached homes--in turn severely limiting the buyer pool for half-million-dollar-plus homes like this.

And I haven’t even mentioned the effect rising unemployment rates, tightening lending standards, and interest rates that can only go up from here will have on the viability of that ever-shrinking pool of move-up buyers.

On a personal note, I’m really excited about what’s going on in housing right now. I’m excited because the government’s attempts to re-inflate house prices will only make the bottom lower (although they will be successful in postponing the arrival of said bottom). That means that instead of being relegated to checking out apartments with outrageous HOA fines, at this rate I’ll be able to make my dreams of owning a detached home in a sweet neighborhood a reality. As we approach the bottom, starter homes will once again be starter homes (and not starter apartments) and I for one am really looking forward to it.

Plus, by not buying during the last few years at inflated prices, I’ve been able to save up massive amounts of cash, make some money investing (and preserve a good amount of my 401k by getting the hell out of the stock market last summer and into safer investments), and live an amazing (but within-my-means) lifestyle. Gotta enjoy life but keep low overheads, kids!

So by the time this bubble is done deflating, I’ll have even more cash stowed away, I’ll be able to afford a much nicer and bigger place, I’ll have plenty of money to update/furnish it, I'll be able to afford a home instead of an condo (don’t get me wrong--there are some nice condos out there, and I understand the appeal of not doing yard work, etc., but I've always wanted a house), and prices will be so reasonable that I’ll be able to continue traveling, driving fast cars, and enjoying meals out on the town and vacations with friends and family without being a slave to my house.

And so will you, my friends, as long as you're patient, nimble, and optimistic.

See, who says this blog never focuses positive news?