Monday, April 21, 2008

Getting There

38 condos in the Laguna Oaks complex in Elk Grove were auctioned off this weekend. It looks like the auction was successful, with all the units selling. According to News 10, buyers paid more than the minimum asking price but less than the suggested asking price:

"While several condos were expected to sell under $100,000 during pre-auction speculation, Winchell said it appeared just one sold under that mark at $95,000. Even the most expensive three-bedroom unit sold at a healthy discount of $170,000."
The HOA dues (.pdf) for an 1168 sqft three-bedroom/two-bath unit at Laguna Oaks are $181 per month, and property tax is $177 per month (1.25%). Figuring a realistic 7% 30-year fixed loan, PIT for this property would be $1489 per month, or ~$18,000 per year.

Not too shabby. The area is decent, the units look OK, and the average family of four can definitely afford these. I do think $145/sqft is still a bit high, but the overall price seems to work. I wonder how the people who bought two years ago feel about these "healthy discounts?"

9 comments :

DrDoom said...

smf:

You wrote

"I don't think we'll see those home prices anytime soon, and maybe never in my lifetime"

How long to you plan to live? I enjoy your comments so please don't check out early.

Tell me what is wrong with this thought process. House prices should keep up with inflation on average plus a differential for nice place to live, increased goverment fees, harder to develop land, etc. That would say annual average increase would be 4-5% (historical 30 year Sacramento is 7%). If the pricing over shoot was in the the range of 25%-30% average correction time needed would be 4-7 years? If we hit higher inflation correction might be shorter. The last correction in Sacramento (although it was a smaller bubble) took from 1992 to 1999 to recover (estimated from OFHEO data).

Deflationary Jane said...

1500 mo is still high for a under 1100 sqft apt. Call it a condo but those still look like glorified apartments to me.


Doom,

I agree with SMF. This last run up was so stupidly huge that we'd need a chain of black swan events to back to peak 2005 prices.

Anonymous said...

what about the Alt-A reset? More than 50% took equity.

Max said...

1500 mo is still high for a under 1100 sqft apt. Call it a condo but those still look like glorified apartments to me.

Glamorous it ain't, that's for sure. As for ROI, probably none for quite a while either. Here's a 3/2 in that same complex for $1350:

$1350 / 3br - 3bd/2ba condo with swimming pool & fitness

Rob Dawg said...

It looks like the auction was successful, with all the units selling.

Too many of these so called "auctions" not closing. I'm not being negative nor an I puffing up, just pointing out that what looks like a sale is at best a sale in these situations.

Max said...

Actually, the sales history for this place looks funky. There were a couple of overpriced sales at the end of 2006, then a bunch of sales toward the end of 2007.

It looks like a few sold for almost $300K. Some suckers paid over $130K for the 1-1 that went for $95K yesterday. I also found a listing for a 1-1 asking $85K. Hmmmm...

Max said...

Too many of these so called "auctions" not closing. I'm not being negative nor an I puffing up, just pointing out that what looks like a sale is at best a sale in these situations.

Yeah, we'll attempt to track these down in the sales data in a couple of months. They were kind enough to include the unit numbers on the pricing sheet, so it should be a piece of cake.

smf said...

My reasoning is this:

1. There is a huge level of inventory out there. Not just for sale housing, but also rental. All the numbers were skewed. More than enough mansions were built. Townhomes and condos were built for those who could not afford a home (as if they can, they probably wont buy attached housing).

There was at least 30-50% excess housing built.

This DOES NOT include the many for rent multi-family buildings that were built for those that were 'priced out of the market'.

2. The historical home price chart, the one from 1890 forward, shows overall very little appreciation for homes. You could grab certain time periods to give the numbers you want, but I see little overall appreciation.

3. Population growth is not as great as it was even a few decades ago. Housing demand should directly track population growth. Hence, places like the Bay Area should have had nil price growth. Housing prices are driven more by demand than by inflation.

4. Size of bubble was waaaaay beyond stupidity. My prior home was worth $115K in 2000 and $350K in 2005. Under what logic could that happen? The prior bubble was not even close to the level of silliness that this one was. There is no comparison.

Darth Toll said...

DrDoom wrote: "House prices should keep up with inflation on average plus a differential for nice place to live"

What kind of inflation are you speaking of here? Houses keep up with INCOMES (or income inflation, if you prefer.) Incomes are always the fundamental cash flow basis for RE prices.

Most folks I know (in tech) haven't gotten a meaningful raise since 1999-2000. If a huge recession/depression kicks in, incomes will be going DOWN across the board, not up.

My point is don't look at skyrocketing inflation as a good thing for supporting higher RE prices as the reverse is probably true. Only large wage increases can support higher RE prices and those won't be forthcoming anytime soon, imho.

All bets are off if the government starts mailing out bigger stimulus checks on a weekly basis.