The Tax Credits End, Let The Anxiety Begin

1901 East OCEAN Blvd #205, Long Beach, CA 90802
Asking Price: $705,000
Peak Purchase Price: $725,000
Beds: 2
Baths: 2.5
Sq. Ft.: 1,883
$/Sq. Ft.: $374
Community: Downtown Area/Alamitos Beach
MLS#: P734338
Source: CARETS
On Redfin: 35 days
HOA Fine: $444
20% Down Payment: $141,000 (20%)/$28,200 (FHA)
Income Requirement: $161,000 (Mortgage/3.5X)
Monthly Nut: $4,200 (conventional)/$4,900 (FHA)
Description: Here is your opportunity to own in the exclusive Park Regency complex along Ocean Blvd. This stunning complex is a real gem with an incredible courtyard and exterior finshes and details!This premiere 2bed+Den corner location affords stunning ocean and park views and is the largest floor plan in the complex!The interior of the home offers beautiful slate floors, custom crown molding, open and functional kitchen, newer appliances, custom window shutters throughout, full home theater, fireplace in the living room and more!This open floor plan is full of natural light and is sure to impress along with offering a oversized master suite with sitting area, large living room and formal dining room!Complex offers a clubhouse, spa and is secured along with closed circuit TV surveillance as well!2 side by side underground parking spaces and additional storage!

"Finshes"?

This dummy bought promptly at the peak of the bubble and has somehow convinced himself there was no crash.

Nope, never happened. Didn't take place. Just something the librul media made up. Everything's just hunky dory, and I can get out of this for pretty much break even. Yep, annnnnnnnnnny minute now...

So, this delusion-deluged soul is asking $705,000, a paltry $20,000 discount from his purchase price three years ago. Never mind the last three years have seen the most devastating housing crash in the history of the USA, where $Trillions in net worth and home equity evaporated -- but not for this guy, no way. You see, he's special.

And by the way, his asking price is just under FHA limits so technically you could get a(n essentially) no-money-down FHA loan and avoid putting substantial skin in the game. Of course, your payment would shoot from $4,200 a month to $4,900, but at least you'd have the option of moonwalking away when the value of your apartment inevitably drops and you find yourself perilously upside-down.

In the context of a free pass to walk if the going gets tough, it's difficult to argue paying a higher monthly nut isn't worth it.

If you look at the sale history, the 1997 buyer (who bought just after the trough of the last housing crash) made a nice chunk of chance during his nine-and-a-half years of ownership:

May 10, 2010 - Listed $705,000
Mar 21, 2007 - Sold $725,000 (+11.8%/yr)
Oct 24, 1997 - Sold $255,000 (+9.3%/yr)
Jul 28, 1995 - Sold $209,000

A nice, solid 12% appreciation per annum. Well played, sir.

Unfortunately for our seller he failed to see that paying nearly half-a-million bucks more than the previous owner was a big red flag of a speculative, unsustainable bubble. Unless this apartment suddenly doubled in size and was transported to the beach side of Ocean Blvd., there is no economic justification for four walls and a roof appreciating an average of $50,000 per year.


So what you're seeing here is a seller desperately clinging to the misguided notion that he didn't overpay and deserves peak pricing for his "wise" investment.

The good news for our embattled seller is a sold comp appears to justify his asking price: Unit #203, also with an ocean view, sold in May for $695,000. Going by that comp, he and his agent (the same agent who sold Unit #203, by the way) aren't that far off.

Or are they?

Because there appear to be some subtle differences between the units. For example, the kitchens.

You can get with this (Unit #203):

Or you can get with that (#205):

I think you'll get with this, 'cuz this is where it's at.

But they're both pretty nice inside, so let's just assume they're apples-to-apples.

In that case, why is our featured unit still on the market?

Maybe because that May buyer was a complete fool and the vast majority of buyers have noticed how much cheaper it is to rent luxury condos on Ocean Blvd? After all, this loaded condo with an ocean view is only asking $2,683 (a precise asking rent typically indicates an investor trying to cover his monthly nut) -- a massive $2,100 monthly savings!

And you get to live here:


Nice!

Please, someone explain to me how purchasing 1901 Ocean, given the anxiety a new owner would suffer over the likelihood of further price declines, is worth that kind of premium over renting that luxury unit.

Maybe it hasn't sold because of the cheaper competition in the building? This unit (again, listed by the same realtor) is asking $599,000.

Now, to be fair it does not have an ocean view. But is an ocean view really worth an extra $106,000? Frankly, I think so, but in order to truly answer that question you first have to determine whether a non-ocean view is worth $599,000 in the first place. Given the 43 days on market with no interest, I'd say no.

Or maybe it hasn't sold because in the absence of the expired Federal tax credit and the soon-to-be-expired State credit, $705,000 just seems too rich for buyers' blood?

I think this is the most likely scenario. The expiration of the tax credits makes this a whole new ballgame. In my opinion much of the demand has already been pulled forward and we're finally about to see what the housing market really looks like without a bulk of the artificial support (other than FHA loans and record-low rates).

If sales drop like I think they will during the next few months, another tax credit is pretty much ensured. And maybe it'll be $12,000 this time. Or why not $15,000? With Obama asking for $50 Billion in state-aid (I love how the WaPo characterized it as "pleading" for money. And wait, why more funds? I thought that's what the stimulus was for) and Freddie Mac/Fannie Mae requiring up to a $Trillion taxpayer dollars (yes, with a T) to keep the lights on, at this point it's just Monopoly money anyway.

The government has shown it will stop at nothing to prop up housing, and after dumping truckloads of cash into these reflation efforts, I don't expect it to suddenly change course any time soon.

Who's excited for the next round of free ponies?