How Much Is It Worth?

I've been scratching my head a lot lately wondering how to estimate a fair market price on properties for sale here in Huntington Beach.

Asking prices are out-of-touch with the market and seem to be driven delusional, denial-based wishes of homedebtors. Take as an example this listing from Redfin:


1,100 cramped square feet for $629,000 or $554/sqft where other properties in the area are selling for under $400/sqft. No wonder the house had been on the market for almost half a year.

Comprables properties are of some value, but are problematic because with property prices plummeting as they are, any property sold more than 30 to 60 days prior is no longer reflective of current values.

Then there are also comprables where the buyers, IMHO, paid much more than they needed to for properties thus biasing values upward. These buyers are like the idiot who split sixes at the blackjack table when the dealer has a ten showing: not only do they screw themselves but they also mess up the game for everyone else

So, if asking prices are meaningless and comprables are of rapidly diminishing value and subject to the influence of knife-catching, sixes-splitting idiots, how can one value a home? I'm not certain but I think I've found something that can help.

I was visiting one of my favorite blogs papermoney.com last night and found a remarkable home pricing tool.


It's a home price calculator that uses the past sales price of a house to estimate its current market value. The way it does this, is by comparing the Case Shiller Home Price Index at the time of last purchase and extrapolating the current price and future price of the home by the looking at the current trading price and futures price for the index, respectively. Being a quant and a big fan of Case Shiller, I think this tool is pretty damn cool.

It's really easy to use. Select the region your suspect home is in; in our case it is the CS Los Angeles market, type in the last sale date of the property you're interested in buying and the amount at which it sold--that's it. The tool will then calculate its past, current and future value (3 and 6 months out) for the home.

Let's do an example together. Here's a house I had a passing interest in over the last few weeks.


It's a nice house on a cul de sac, almost 2,400 sqft, very serviceable with a price reduced down to $625,000. Even for this market it almost seems like a good deal at $264 a sqft. But is it really?

By scrolling down to about halfway down the Redfin listing, we can find the sale history for the home:
So we type these values into the calculator and what do we find but that, at least according to this calculator, this price is still roughly $60,000 over market. I showed this to Mrs. HB Bear and we agreed that we'd pass on this fine little number on Autumn Circle.


So, fellow ursines, when you're considered making an offer at a home in the future, be sure to check out this fine little tool first. (I've added a link to the Cool Tools section of the blog for your convenience.) It may not be an exact estimate of the value of a home, but IMHO it is far more accurate than unrealistic asking prices and short expiry comps and just might prevent you from making a big, big mistake.

Viva los Osos!

Right Time to Buy: 2014

A great article came up in one of my news feeds today that I wanted to share with readers. This provocative Business Week article, says, among other things:

• Prices will only stabilize once foreclosures and sales volumes stabilize first.
• While some areas will stabilize as early as 2010, national prices won't stabilize until 2011.
• For the "bubbliest" of markets, including the author's home turf here in OC, prices may not stabilize until 2014.
• When prices do stabilize in OC in 2014, prices very well could be lower than in the early 90's.

His and my advice to buyers in SoCal is simple: wait.

Viva los Osos!

HB Comp Killer - 6202 Point Loma Dr

6202 Point Loma Dr Huntington Beach, CA

Sold For: $550,000 (06/27/2008)
Beds: 5
Baths: 2.5
Sqft: 2,276
Price per sq ft.: $242

I've seen a lot of comp killers over the last several months, but this one takes the cake. Five bedrooms, two-and-a-half baths and almost 2,300 sqft of living space in one of the nicer/nicest parts of West Huntington Beach for only $550,000. That, friends and neighbors, is mind-boggling even to me.

At the peak, $550,000 wouldn't have bought you a sub-1000 sqft bungalow fixer-upper, on a busy part of Heil that may have had some foundation issues relative to "liquefaction." Seriously, it wouldn't have.

But, now the proverbial tides have changed and 2,300 sqft can be had in a nicer part of West Huntington Beach, in at least in one instance, so far, for only $550,000.

Now, particular property does have its issues. Even from a drive by the place I could tell that it clearly needed some work; it would be fair to call this house a "fixer-upper." It also backs a "major" street, Slater which means moderate noise. The property is also is at the entrance to the tract which means heavy traffic. Landscape rennovation would be required. Certainly there must be other issues that I couldn't grock on a drive by, but even when you consider all the negatives, this property still sold for only $550,000.

It's just amazing how much more house one can get today in west HB than he could at the peak for the same amount of money. I am actually dumbstruck by the enormity of it all.

(I have more to write about this property. Once I can gather my thoughts and get some work done for a customer, I will hit the blog with an update. Just imagine the impact on comps in the area....)

HB Haircut - 5091 Linda Cir

Beds: 4
Baths: 2
Sq. Ft.: 1,750
$/Sq. Ft.: $357
Lot Size: 6,360 Sq. Ft.
Property Type:Single Family Residence
Style: Traditional
Year Built: 1959
Stories: 1 Level
Area: Northwest Huntington Beach
County: Orange
MLS#: S520813
Source: SoCalMLS
Status: Active
On Redfin: 177 days

***Update: This property went into escrow in the last couple of days; it will be VERY interesting to see what they got.***

This single story cul-de-sac home has been remodeled and was spared no expense in the quality of materials and workmanship used throughout. It boasts nothing but the best. New Custom Landscaping, New Custom Vinyl Patio, Custom New Hardscape, Newer Carpet, Seperate Laundry Room, Recessed Lighting, New Interior doors, Baseboards and Moldings, Solid mahogany front door, Formal Dining Room, New Anlin Energy Efficient windows/sliding door, new central heat and water heater, new paint, new exterior, stucco, and new interior texture. Located in a family friendly neighborhood within walking distance to the distinguished Village View Elementary School and Marina High School.

Original List Price: $749,900
Previous Price: $649,999
Search Price (High): $649,900
Search Price (Low): $624,400

Months ago I toured this property and as the description says, it's a pretty nice home (this kitchen is quite small, however) and on a great little cul-de-sac here in my neck of the woods, West HB. At the time they were asking $749,000 for the home.

At the time, before the comp killers came en masse to West HB, I though the property was worth maybe $660,000 or about $90,000 less than they were asking. Had they priced it at that level, IMHO the house would have sold. But they didn't. Instead they introduced range pricing and brought to price of the home to the $749,000 to $699,000 range--lower, but still more than a prudent buyer would pay.

The house languished on the market and, unfortunately for this seller, the comp killers began to show up soon thereafter. In response, they dropped their price to the $699,000 to $649,000 range, but the price damage from the comp killers had already been wrought and the house was no longer worth $649,000 and so the house sat on the market.

Now they've dropped the price to $624,400 to $649,000 range. And guess what? I think the price is still to high. With the number of CA Option ARMS set to reset and the most recent comp killers, I wouldn't pay more than say $565,000 for the house at this point or about $90,000 less than I thought it was worth originally and about $200,000 less than the original asking price. Now, some knife-catcher might pay more, but that will be his loss; not mine.

Had the seller priced his property correctly in the beginning, he could have walked away with tens of thousands of dollars more than he'll get in the fullness of time. Sellers ought to know by now that pricing a house aggressively is the only way to sell it and that greed is punished severely in the market today.

So here's the take away from today's post. Buyers, if a house seems too expensive, it probably is; be patient, the market will nudge sellers in the right direction. Sellers, if you're not priced well-below the most recent and comprable comp killers, your house won't sell and every month you wait costs you....

Viva los Osos!

Case-Shiller Futures Bear Porn

Beautiful, isn't it? I wouldn't go as far as the kid in American Beauty, but to a died-in-the-wool bear, there is something vaguely comforting about this graph.