Monday, June 14, 2010

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!


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:


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?


  1. Elbee, 219 Belmont has dropped prices again. Bungled


  2. Why stop at $12K or $15K?

    I propose we offer a $25K home buyers credit.

    If the sale is a short sale, the selling bank will receive the difference between the existing mortgage(s) and the sale price.

    For those who still do not want to buy, all renters will be eligible for up to $25K in "renters credit". To qualify for the renters credit, renters must submit their latest credit card statement from any of the TBTF banks to the U.S. Treasury department, and the Treasury will pay the outstanding balance up to $25K. If the bill is less than $25K, the reminder will be sent to the renter in the form of a Best Buy Gift card.

    Look at that!! I have stimulated demand!!!

    What the hell, it's just government debt anyway..


  3. LOL at Carl.

    Hey El Bee, here's a question for ya... now you have taught/educated me about how buying and selling at the right time is important, but from what I THINK I understand about tax, don't you get taxed substantially on the gain - UNLESS you purchase/invest in an upgrade house?

    That's the way my boss/accounting controller explained it to me. He said that if I were to buy a home at 200K, and sell it a year later at 300K, I would be taxed significantly on the 100K profit I made, UNLESS I were to take the money from the home sale to re-invest in a home that cost more money. (not sure if I got this right)

    So my question is (assuming I'm understanding the tax part correctly), if I were to time the housing market right, and buy in a downturn, and sell in an upturn, wouldn't I be practically forced to re-purchase during the upturn?

    thanks and hope all is well

  4. Hope you'll get this comment El Bee, as something seems to be wrong with the blog and it's registering of replies.....

    But here is a related article I'm SURE you'll care to comment on:

    See you all in line at the trough!

    Imma try to get MINES!!!!!!!!

  5. The front page still shows just one comment in count, when there are now FOUR comments...

  6. Also, the 599K unit seems WAY nicer.

    In the photos, seeing the community hot tub.... there's like a tiny hot tub, surrounded by a parking lot of concrete/brick....

    Why would you not put a decent size hot tub in, instead of putting all that NEEDLESS brick???

  7. mike,

    that was the old cap gains rule. changed in the mid 90s.

    now $250k per individual, $500k/couple is free of all cap gains taxes.

    pure profit/income. no tax.


  8. FreedomCM, THANK YOU!!!!

  9. Profit on your own home is not taxed, PROVIDED you live in it for 2 of the last 5 years.
    If it is a rental, profit IS taxed, unless you use a 1031 exchange. IRS will also "recover" any depreciation that you took,counting it as income.

  10. Thank you again, very much.

    By the way, I'd like to share one REALLY good deal that I just witnessed. A friend of mine's grandmother recently passed, and he inherited her house. The house is off Santa Fe and Willow, which is known for being not a very great area..... but the house was one block off Santa Fe, and when you drive off Santa Fe, all the sudden you find a VERY quiet neighborhood, with all houses (no multi-unit eyesores), nice yards, well kept, etc......

    You'd never think you'd find such a nice, quiet, peaceful neighborhood here!

    So anyways the house had two bedrooms and one bath, but it had a nice size front yard, and a HUGE backyard. The backyard has a ton of privacy. There is also a long driveway, which leads to a nice size concrete area, before a big two car garage, that has windows looking at the backyard.

    You could easily install a pool (AND a jacuzzi), use the garage as a pool-house, and have PLENTY of space left over.

    The house is really nice and in great condition, and the wiring was re-done (he spent 3K to do it).

    It sold for only 300K.

    So here to be had was a house, BIG yard, plenty of outside square footage, decent size inside (don't know the exact square footage, but besides the two bedrooms there was both a living room AND a dining room), in a nice, safe, quiet neighborhood for only 300K.

    If I were married with a second income to contribute, I would have jumped all over this. My buddy didn't keep because he works way out in Fullerton.

    Anyways, just thought I'd share that. Never thought you could get a decent home, huge yard with privacy, in a decent neighborhood, no HOA fine, for something reasonable/manageable like 300K.