East Manhattan Beach real estate over the past few years has experienced really fabulous price growth.

On a rolling 12-month average for median price, the Mira Costa sub-market (MLS area 147) stood at $1.7 million back in January 2015 and held its peak through a majority of 2018 at $2.25 million.

That is a whopping 32% median price increase in just over three years for that sub-market.

This year, we have seen some price softening in the Mira Costa sub-market to a rolling 12-month median price of about $2.1 million. Contrary to popular belief, even in Manhattan Beach, prices do not always go up in a straight line.

Just about a year ago, I wrote a blog post titled “East Manhattan Beach New Construction: Is the Margin Too Wide?” This post covered the record new construction prices and how existing home prices seemed to be selling much lower creating a large gap in pricing.

Since that post, two things have happened in East Manhattan Beach:

1. New construction prices have continued to set higher records.
2. The margin between new construction and existing homes seems to be widening even more.

New Construction Records March Higher

There were three sales this summer on standard 7,500 square foot lots in your typical East Manhattan Beach locations that set record highs for the area. These three sales sold for higher than $4 million, something that has never happened on a 7,500 square foot lot outside of the Poet’s neighborhood.

• 1643 8^th Street
  • 5 bed, 6 bath, 4,836 sq. ft., 7,500 sq. ft. lot
  • Sold Price: $4,150,000

• 1320 9^th Street
  • 6 bed, 7 bath, 4,900 sq. ft., 7,512 sq. ft. lot
  • Sold Price: $4,250,000

• 1755 8^th Street
  • 5 bed, 8 bath, 4,836 sq. ft., 7,502 sq. ft. lot
  • Sold Price: $4,465,000

The sales above far exceeded the $3.95 million over-sized lot new construction sale at 1721 8^th Street addressed in last year’s post.

New construction prices above $4 million are now not a one-off, but are three very consistent data points for this marketplace. With prices going for over half a million more than last year’s sales, it is sufficient to say that I am stunned with the sustained East Manhattan Beach new construction price growth.

Recent Existing Home Sales

The latest existing comparable home sales are looking much different in this East Manhattan Beach neck of the woods.

For example, one is a 2000-built vintage home and has likely been untouched since it was constructed 20 years ago.

• 1447 10^th Street
  • 5 bed, 6 bath, 4,041 sq. ft., 7,502 sq. ft. lot
  • Sold Price: $2,500,000

Take a look at another example, a 1988-built home that was recently rehabbed to match the style many buyers desire today.

• 1411 8^th Street
  • 5 bed, 5 bath, 4,128 sq. ft., 7,500 sq. ft. lot
  • Sold Price: $2,805,000

Relative to the new construction sales, a 4,000 square foot home at an almost $2 million discount to a 4,900 square foot new home seems like a great deal in the grand scheme of things.

Additionally, the rehabbed $2.8 million home might be an even better deal relative to the new construction. Sure, it doesn’t have the bells and whistles of the new construction, like the wide open floor plan or the backyard with a pool and back house, but it is a great looking home and a great value for a similar sized home.

The Margin is Widening

So, if you had your calculator out, the margin between new homes and existing homes is definitely widening.

Last year, the margin between the two was between $1.15 million and $1.7 million.

This year, the margin is between $1.65 million and $1.965 million.

And, to land the turnkey and stylish 1411 8^th Street existing sale, you will only have to pay a $305,000 premium to the 1477 10^th Street fixer to have it.

Conclusion

Even amidst the softening East Manhattan Beach pricing, new construction price growth cannot be stopped.

I believe in efficient markets and with the widening spread between new construction and similar existing sales, the data is suggesting that new construction last year was a deal. Manhattan Beach buyers cannot get enough of new construction and are willing to pay a pretty penny.

If you have not picked up on my thoughts regarding the East Manhattan marketplace through my blogs, quarterly reports, or Instagram posts…I am a skeptic of the market strength for new homes.

At the current new construction record prices, almost any undersized home east of Sepulveda could make for a land value sale. I just don’t see how that can continue for too much longer and why I still think new construction purchases in East Manhattan Beach continues to be one of the riskiest real estate purchases out there.

However, I will admit that I have been dead wrong on new construction price growth in the sub-market. It has only gone higher.

Maybe I will continue to be wrong as the market data can humble anyone.

But at some point, extreme premium pricing on new construction will run out of steam if the rest of the market cannot keep up the pace.

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