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Overpriced Homes Are No Longer Selling Without A Reduction

A report from Mansion Global on California. “At the beginning of this year, the demand for L.A. properties still far exceeded the supply, which drove prices higher and higher as the growth in other global cities slowed or stopped. But by March, that supply and demand equation—specifically in high-end, luxury areas, like the Birds Streets area in Beverly Hills —started to shift, experts say.”

“Paul Habibi, a professor at the UCLA Ziman Center for Real Estate said there was this strong climate for developers, who aggressively built new, modern spec homes and remodeled existing ones in that area. But when they came out of the pipeline and hit the market, buyers were no longer willing to pay prices they may have last year.”

“‘We have had a dramatic run-up in pricing in L.A. since the recession,’ he said, noting that in many in-demand areas, there were double-digit price increases for several years. ‘But it’s hard to continue that frenetic pace for an extended period of time.'”

“Tami Pardee, the CEO of Halton Pardee + Partners agency, agreed that the supply versus demand dynamics have recently changed. ‘In Venice, we used to only have 40 houses on the market a couple of months ago, but now we have 70,’ she said.”

“But the inventory that’s out there is still moving, she continued, noting that the number of homes sold in Beverly Hills this year in the $4-million-to-$10 million range is almost exactly the same as the number of homes sold during this same period last year—79 in 2018 versus 81 in 2017. And the number of homes that sold in the $10-million-plus range increased, from 20 in 2017 to 30 in 2018. But the median sales price of that Beverly Hills ultra-luxury home did decrease by almost 31%, to $18.3 million, she said.”

“‘What that’s telling me is that the market for $10-million-to-$20-million homes is more active than it was last year,’ she said, ‘but the really big sales aren’t happening like they were.'”

“The same dynamic was true in Malibu in the $4-million-to-$10-million range, with 10 more sales this year, coming in at 11% less in terms of price. But in the $10 million-plus range, a $110 million sale earlier this year skewed things. ‘If it wasn’t for that sale, the market would be down 20%,’ she said.”

“This is all to say that luxury buyers can afford to take their time and be choosier, rather than feeling they have to jump at the first property they like, Mr. Parnes said. ‘Overpriced homes are no longer selling without a reduction,’ he continued. ‘Buyers can afford to be really selective—especially in the luxury market.'”

The San Francisco Chronicle. “Facing the white sand and azure sea of Carmel Beach, this iconic home is on the market for the first time in 40 years. Bidding now starts at $7.5 million, which is a price drop from the original listing of $8.088 million.”

The Orange County Rgister. “A 19-bedroom Beverly Hills estate that was home to flamboyant publisher William Randolph Hearst and Marion Davies, and a honeymoon spot for John and Jacqueline Kennedy, is back on the market at $135 million. That’s a $60 million plunge from its onetime peak offering.”

This Post Has 33 Comments
  1. ‘on the market for the first time in 40 years. Bidding now starts at $7.5 million, which is a price drop from the original listing of $8.088 million’

    They got cold feet fast.

    ‘in Malibu in the $4-million-to-$10-million range…coming in at 11% less in terms of price. But in the $10 million-plus range, a $110 million sale earlier this year skewed things. ‘If it wasn’t for that sale, the market would be down 20%’

    It is down 20% Tami, that one shack didn’t change anything but the statistics.

    1. Speaking of cold feet, the weekly Running of the Lemmings in Hong Kong indicates the pool of Greater Fools and Knife Catchers is undergoing a sharp depletion, even with deep discounts and creative financing by developers.

      Separate but related, what’s going to happen to West Coast shack prices when Chinese speculators and money launderers who massively overpaid have to start liquidating assets to cover their bad bets back home? China, after all, still executes wheeler-dealers who end up defrauding the state.

      https://www.scmp.com/business/article/2167297/flat-sale-results-hong-kong-offer-proof-worlds-priciest-housing-market

      1. Great question! I suspect a flood of properties to the market (which I see adding up every day) and the whole “shortage” spin the RE shills are STILL pitching will become “hurry and sell before it’s to late”. Two of the homes on my street that have sat vacant with yards dried up have mysteriously been placed back on the market after both being purchased less than a year ago. One of these homes the neighbor confirmed was bought by a “foreigner” the other I suspect was as well. Between all the new listings, especially foreclosures (banks are on D-R-U-G’S asking market price for them) it can’t be good for the speculators or smucks that bought at peak. Panic is setting in more and more every day. But I’m told it’s a great time to buy…

        1. When the NAR dusts off its transparently false Housing Bubble 1.0-era slogan, “It’s a great time to buy AND sell!” we’ll know the bottom is about to drop out.

  2. ‘back on the market at $135 million. That’s a $60 million plunge from its onetime peak offering’

    All this sawin’ and a slashin’. These Californians are getting used to this like the New Yorkers did.

  3. Markets
    All the Nightmares for Stock Investors Start in the Bond Market
    By Lu Wang and Sarah Ponczek
    October 5, 2018, 3:24 PM CDT
    – S&P 500 has worst week in a month as 10-year yields hit 3.2%
    – Small caps fall for third week in longest retreat in 11 months

    If there’s one thing the prophets agree on, it’s that the end will come in the bond market. Even for stocks.

    Prophesies of doom are everywhere. There’s billionaire investor Stan Druckenmiller, who says our “massive debt problem” will ignite a crisis. Oaktree Capital’s Howard Marks warns that public and private debt will be “ground zero when things next go wrong.” And Citadel’s Ken Griffin sees a credit binge ending badly.

    If you’re an equity investor, all the hectoring has probably left you frazzled, staring anxiously at fixed-income markets for early signs of the apocalypse. So it’s no mystery why the sight of 10-year Treasury yields spinning higher at the fastest rate in two years was enough to send the S&P 500 to its worst two-day tumble since May.

    https://www.bloomberg.com/news/articles/2018-10-05/all-the-nightmares-for-stock-investors-start-in-the-bond-market

    1. “The changes L.A. is experiencing today mean a return to a more sustainable and measured growth, he said. And because other economic factors, like the job market and stock market, remain strong, “there is no reason for purchasers to suspend their home-buying activity,” he continued.”

      Let’s see. He admits that home price appreciation has been unsustainable for some time and is starting to level off or go down. It is a fact that interest rates are rising fast, and that the mortgage and building industry is starting to lay off workers. House flippers are out of a job (to the extent that could even be called a job), and landlords who are looking at negative cash flow (resulting from buying too high and/or the apartment glut in many cities) and real estate depreciation, are being forced to sell in desperation to stop the bleeding. No appreciation means no more cash out refi’s allowing ppl to binge buy and keep afloat. All economic indicators point to an over-valued stock market. Yes, there is no reason at all to hold off on the purchase of a home.

      I have had two co-workers who I told not to buy earlier this year and were actively engaged in bidding wars, come to me crying saying that they should have listened to me and that they are cash strapped and their homes have dropped in value below what they paid. These “experts” have no shame or ethics at all.

  4. “But when they came out of the pipeline and hit the market, buyers were no longer willing to pay prices they may have last year.”

    Just in the first innings of the housing bubble 2.0 and last year buyers schlonged already

    “And the number of homes that sold in the $10-million-plus range increased, from 20 in 2017 to 30 in 2018. But the median sales price of that Beverly Hills ultra-luxury home did decrease by almost 31%, to $18.3 million, she said.”

    Soon coming to all houses in every price range

  5. ‘in many in-demand areas, there were double-digit price increases for several years’

    And think of the compounding Paul. It was like a gold rush without the gold!

    ‘But it’s hard to continue that frenetic pace for an extended period of time’

    You just said it happened for years. Maybe what you mean was it couldn’t go on forever? Anyways, this is a real estate professor who couldn’t see a bubble right out his office window.

  6. Starting to really dig these headlines, which are going to negate the incessant NAR lies and dissembling. From all indications, September looks like the month when inventory nationwide suddenly (and of course “unexpectedly”) soared as sales plunged. That is going to be a come-to-Jesus moment for millions of speculators, FBs, and greedhead sellers clinging to their wish prices. But realtors subsisting on Raman noodles and food bank gleanings are going to get brutal in refusing to take listings that aren’t priced to SELL as they chase the market down.

    Gosh, it’s good to be a calm, serene, debt-free renter in such an environment. (Hugs self, pets dawg).

    https://www.seattletimes.com/business/real-estate/as-sales-plunge-king-county-home-inventory-has-biggest-jump-on-record/

    The slowdown in the market, now six months in the making, continued in September when the number of single-family homes on the market in King County jumped 68 percent from a year prior, the biggest increase on record dating back to 2000, according to new data. Only San Jose saw the number of homes for sale jump faster than Seattle among major U.S. metro areas last month.

    1. “We’re now at the time of year where prices usually start to drop from their peaks in the spring and summer, but it’s happening on a larger scale this year. Prices countywide have fallen $58,000 from their spring peak; last year in that same time frame prices went down $8,000.”

      There is no way to hide numbers like these… it’s done!

  7. Price cuts are now ramping up in Orange County. Zillow has a new chart that shows percentage of price reductions. Currently 28% of Laguna Niguel homes are having to cut price. In early spring it was 10%.
    That 28% figure is the highest since Zillow records which goes back to 2011. That year represents the second all time highest price reductions at 22%. Here comes the snowball.

    1. Thanks for pointing out the changes. To search for the Zillow statistics google “[CITY] Zillow Home Prices & Values.”

      The one thing that I find disturbing is that Zillow also includes a future home price forecast. It looks like all they do is take the last 5 years of appreciation and draw a line assuming it will continue at the same rate. I couldn’t find any city for which Zillow is showing a significant future slow down although pretty much all major cities had a slow down during the last 3 months which is accelerating. What do you guys think the odds are that they will correct this, or ever predict negative appreciation? Seems like they don’t have a modeling program that actually works, or they are intentionally disseminating false information. Using the last 5 years data to predict the future is something you would only expect from someone with no education or statistical training at all.

      1. Not much incentive for them to show declining growth in future as they too bought inventory for resale. Redfin too. Both companies are going be in a world of hurt during the downturn. Investors won’t look kindly at them selling assets at a loss.

      2. ” It looks like all they do is take the last 5 years of appreciation and draw a line assuming it will continue at the same rate.”

        There is a strong correlation between home prices and the credit markets. You would likely “see” what you are looking for in a moving average weighted by interest rates.

        1. I’ve listened to Glenn Kelman on several occasions and he strikes me as somewhat reasonable despite being in the real estate business. The last podcast I heard him on he said that the fundamental problem with real estate in the US is that it was too expansive. His rationale for getting into the buying and selling was to put pressure on the 6% baked in from buyer and seller’s agents. He even said that he told his purchasing team to settle down in light of King County declines and the huge cold front that has swept the hot coastal markets in the past few months.

          Having said that, depending on how much they bought they are naturally going to be “talking their book” and won’t want any sharp sudden movements down in any of the markets they purchased homes. I would suspect that Redfin could buy much more intelligently with all the data of user interest that they can accumulate. If they know what they are doing, I suspect that they could buy and sell even in a flat or downward market. But we’ll see what actually happens.

      3. Using the last 5 years data to predict the future is something you would only expect from someone with no education or statistical training at all.

        LOL—but the computer said it, so it must be true!

      4. People in my office this morning were talking about the Redfin appreciation predictions and comparing neighborhoods while verbally patting a coworker on the back for being in escrow. Several of these predictions are still for 10%+ year over year. I am going to have to keep my mouth shut at work for a bit, it seems.

  8. So now the slowdown in August, which realtors cooed was “seasonal and expected,” is rapidly morphing into something that looks like nuclear winter for overheated housing markets. I eagerly await, popcorn in hand, for the October data to come out and the increasingly hysterical and outlandish REIC shill attempts to assure us that all is well.

    BTW, what happened to our resident HBB permabull trolls? Suddenly they’re more scarce than work boots at a Hillary Clinton rally.

    https://www.denverpost.com/2018/10/03/denver-housing-market-goes-cold/

    1. Denver has a really bad homeless problem.

      Civic Center Park, and all of downtown, are overrun with aggressive panhandlers, public urination and defecation, heroin and meth users.

      1. Ever since Colorado Springs and Manitou Springs legalized recreational pot sales, both places have been overrun with riffraff oozing into town from God knows where. My friend’s daughter, a coed who lives in Old Colorado City – heroin overdose central – said the older, more benign homeless guys who frequent the trails she runs on have warned her that the new arrivals invading the area are younger, more violent and aggressive, and are more likely to be strung out on hard drugs that make them more dangerous and unpredictable. The panhandlers seem to have some kind of system for allocating prime intersections and are reportedly remitting a portion of their take to Latino gang members, reputedly Mexican cartel affiliates, who are also showing in droves on the south side of Colorado Springs.

        All bullish for the local housing market, I suppose.

        1. I passed through Manitou Springs last summer. Yes, there definitely is some serious Riff Raff around there these days.

          1. A lot of Southern California hippies gravitated out to Manitou Springs in the 1970s and ended up settling there. They know a thing or two about getting stoned, but they were the ones who spearheaded the fight against MJ legalization in Manitou Springs, knowing that it would change the character of this small, wonderfully weird mountain town for the worse and bring in an undesirable element. They were right.

      2. What a shame. I suppose Washington Park is the same? I remember that being a nice place to exercise or just hang out.

  9. Earlier this year back in May there was a feeding frenzy in the R.E. market here in South Orange County. Average listing prices were 1.07m. I wanted to buy, but didn’t want to compete. Realtors always saying better buy now. Prices are just going up. And my favorite, “sellers are not looking at offers till Tuesday”. Today the average price stands at 899k. Currently 28% of homes have had to reduce price. Anyone who bought back in May and needs to sell is already down 250k, when you include realtor commissions. So looking back at those attempted purchases and missing out. Losing was actually winning big!
    https://www.movoto.com/ca/92677/market-trends/

    1. It’s hard to overestimate the value of patience when prices are tumbling and prospective buyers are standing back while trying not to catch themselves falling knives.

  10. As stocks slide, investors see turn to a ‘defensive market’
    By Ryan Vlastelica
    Published: Oct 6, 2018 10:23 a.m. ET
    Utilities have been the best-performing sector of the week
    Courtesy Everett Collection

    Defense has become the name of the game for some market analysts, who are urging caution and suggesting the recent rise in volatility was likely to continue.

    U.S. stock-market investors have been playing offense for the past several weeks, driving major indexes to repeated records, but that trade may be reversing as a rapid rise in bond yields have spurred some heavy selling in the world’s largest equity market.

    “The S&P 500 is topping out as policy normalizes,” said Barry Bannister, head of institutional equity strategy at Stifel, who was referred to Federal Reserve policy. Earlier this week, the Fed raised interest rates for the third time this year and indicated that it would do so again at its December meeting. Previously, Bannister has suggested that such a policy would result in rates crossing the “bear market trigger.”

    On Friday, he wrote that “the Fed is already tighter than they realize, and as the dollar rises further and [earnings] estimates are cut the market will drop faster than the Fed can (or wishes to) react.”

    https://www.marketwatch.com/story/as-stocks-slide-investors-see-turn-to-a-defensive-market-2018-10-05

  11. “And the number of homes that sold in the $10-million-plus range increased, from 20 in 2017 to 30 in 2018.”

    On my listings site I count 83 properties over $10mil+ for sale in Beverly Hills right now. Is 83 more than 30? Shortage?

    “in the $4-million-to-$10 million range is almost exactly the same as the number of homes sold during this same period last year—79 in 2018 versus 81 in 2017”

    103 listings in this price range right now. And that’s counting lots of holdovers from last year that were taken down and relisted. But an article a few weeks ago claimed there were *bidding wars* in the $4mil price range in Beverly Hills last year, which remains the most ludicrous thing ever written about this bubble.

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