Tuesday, April 8, 2008

Knife of the "Round" Table

Address: 700 East Ocean Blvd., 90802
Asking Price: 384,900
Down Payment: $38,490
Monthly Payment: $3,100
Income Requirement: $96,000
Year Built: 1965
Size: 2 beds, 2 baths, 1080 sq. ft.
$/Sq. Ft.: $356
Purchase price: $518,000 (OUCH, THAT'S GOTTA HURT!)
Purchase date: 6/2007
MLS#: P630438
On Redfin: 6 days
Description: Long Beach Iconic Architecture at its best. 'The Round Building. ' Spacious 2 bedroom, 2 bath condo located on the 21st floor. Travertine floors. Wrap around balcony views with sweeping views of downtown and the mountains. Security building with gated underground parking. Sparkling pool and gymn. Make offer subject to inspection

Ah yes, “The Round Building.” I’ll bet this place was the cat’s pajamas when it was built in the 1960’s, but now, 45 years later, it’s looking a bit ragged.

This is a cool location, no doubt. Amazing balcony too. However, like most of the condo buildings on Ocean, the HOA fine is absolutely embarrassing. $600 of non-tax-deductible, cold, hard cash down the drain every month.

I guess you get a pool that you’ll use a few times a year, and of course there’s the “gymn” (you’ll need to sing a "gymn" in church and pray that you can somehow come up with a $3,100 monthly payment for a 1000 square foot condo), but for the additional $216,000 you’re paying over the life of the loan, it doesn’t seem like you’re getting much. Take a gander at the outside of the building: Hmmm, the Association doesn’t seem to be investing much of your money into the exterior.

For that kind of money, you must be really take pride in the building you live in. In fact, this seller is so proud to live in a place that demands a $600 monthly tax just for the honor of residing there that he insisted on posting every conceivable aspect of the building instead of the actual unit.

I mean, they wasted a photo slot on an architectural diagram of the building!

What does that tell you? It tells you that the deteriorating exterior and views of a parking lot are the best features of this condo. To wit:

Not very impressive.

And then there’s the price.

$385,000 ($600,000 including HOA fines) for a condo with no ocean views, no car valet, one measly parking spot (in downtown Long Beach! Yikes!), outdated bathrooms, an old, cruddy kitchen, and no in-unit laundry. Other than the beach-adjacent location, this seems like a TERRIBLE deal even at $285,000.

I don’t know what the hell is going on with the sales history:

Jul 15, 1992 - $4,000
Jun 08, 1994 - $161,849 (603.1%/yr)
Jun 02, 1995 - $129,000 (-20.6%/yr)
Nov 26, 2002 - $285,000 (11.2%/yr)
Apr 17, 2003 - $359,000 (81.1%/yr!)
Oct 29, 2004 - $519,000 (27.1%/yr)
Feb 07, 2007 - $532,669 (1.1%/yr)
Jun 11, 2007 - $518,000 (-7.9%/yr)

What I do know is that this groovy little condo is trying to unload for a little more than its 2003 price. Just take a moment and let that swim around in your skull: All of the so-called “value” and “equity” that built up during the last half a decade has vanished like a sparrow fart in the wind.

By the way, considering how quickly the housing meltdown has unfolded so far, is 2002 pricing that difficult to imagine? Five years of value disappeared in 10 months and realtors and commission-heads expect you to believe we’ve approached the bottom? Any talk of Southern California housing price declines nearing a bottom is utter nonsense and you, like this seller, are doomed if you buy into it.

I know it’s boring (and aggravating to some) to hear me constantly admonish you not to buy LB real estate until fundamentals reach near-parity, but you don’t need me to explain the danger of buying in this rapidly declining market; just look at what happened to the poor chump who bought in June 2007 for $518,000.

This knife-catcher thought he was stealing the place by paying "below the 2004 price." It is a temptation that I’m sure many of you are faced with. I mean, after all, a 20% or 30% discount is awfully difficult to pass up when shopping for anything; cars, clothing, furniture, etc.

However, what many people fail to account for is that HOUSING PRICES WERE ALREADY INCREDIBLY INFLATED BY 2003. If Nordstrom gets you into the store with a “Half-off Sale,” but mark up their suits 110%, it doesn’t seem like such a good deal anymore.

For proof of how overpriced houses were in '03, just look at the difference between the 2002 and 2003 prices: $74,000 appreciation in six months?? Prices were already rapidly detaching from market fundamentals, and only got crazier from there.

My point is, the June ’07 knife catcher got suckered by the prospect of a significant discount and is paying a -$133,000 penalty for that horrendous decision. Still thinking about jumping on that "bargain" down the street? According to the numbers, you'll be jumping on a live grenade.

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