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Revisiting South Bay Beach Listings At-Risk of a Loss

Interest rates are at all-time lows.

And, the economy seems to be doing okay.

The South Bay second quarter housing numbers were amazingly resilient considering the challenging times of our economy and healthcare system.

It is evident that during a pandemic, Buyers want a safe space more than ever. At the same time, Sellers also want to hold onto their properties more than in the past.

All these factors lead to an extremely hot market. The set-up for the third quarter looks to be bullish too, but only time will tell.

If you missed the second quarter numbers, be sure to check out my post from a couple of weeks ago titled: “Second Quarter Home Numbers Show a Resilient South Bay Market.”

Just A Few Months Ago

There was a time, just a few months ago, where it was all a different story for the real estate market.

Thanks to the Coronavirus, life and business came to a standstill in the South Bay, throughout the state, and much of the country.

Real estate sales plummeted, lenders pulled back financing, and the stock market was dropping quickly.

For a recap of those South Bay real estate numbers during that time period, which were about as ugly as ever, you can find my month of March recap here and the April recap here.

Things have changed, but there were major dislocations, and still some seen today. I noted a few of these happenings in my May 21st blog post titled: “Dislocations Beginning to Form in South Bay Home Market.”

During these scary times, there were owners listing property for sale that were willing to take a loss, right here, by the beach.

So, how did some of those listings fair?

Owners Selling at a Loss

On April 30th, I wrote a blog post titled: “New South Bay Home Listings Show Some Owners Will Sell at a Loss.” In this blog, I covered a few local sellers that could incur a loss.

Today, I want to revisit those and share the results.

The Rolling Meadows property in Rolling Hills Estate was already a confirmed sale, closing for $10,000 less than its acquisition price in 2016.

But, what about the three other properties mentioned in the past blog located in Manhattan and Hermosa Beach?

Let’s take a look…

  • 3215 Vista Drive, Manhattan Beach
    • 3 bed, 3 bath, 2,400 sq. ft., 3,500 sq. ft. lot
    • Acquisition Price: $2.34 million
    • Disposition Price: $2.16 million in July of 2020
      • Loss of $180,000

This newer town home originally was asking a price of $2.599 million.

After a failed listing, the property came back to market in April asking $2.299 million, which was already lower than its acquisition price.

Although April was not the best time to list, it did not ink a deal until June when the market was beginning to show signs of life, and in some cases, starting to catch fire.

That said, the buyer was able to take advantage of a Seller who had already had a wild ride with the markets and shaved another $139,000 off the price.

The Seller was left licking their wounds with a $180,000 loss, not including closing costs and agent commissions. Ouch.

  • 316 23rd Street, Manhattan Beach
    • 3 bed, 3 bath, 1,940 sq. ft., 1,352 sq. ft. lot
    • Acquisition Price: $2.8 million in 2013
    • Disposition Price: $2.5 million in July of 2020
      • Loss of $300,000

Purchased almost seven years ago, this north Manhattan Beach half-lot view listing was brought back to the market.

It made use of a quick and steep discount to get a deal done.

The Seller decided to price their home in April just $50,000 above their acquisition price in 2013. After just five weeks on market, they cut $300,000 and inked a deal for an additional $50,000 off in May.

That is a $300,000 loss, not including closing costs and agent fees. Double ouch.

Maybe even more interesting, this property sold in 2006 for $2.4 million. So after 14 years, the property value has only gone up $100,000.

Of course, timing is everything and that 2006 sale was the very top of prices before the market crashed. But, you hear too many people say that beach values didn’t go down during the Great Recession. I agree that beach real estate was more resilient during past recessions, but mostly because beach owners can afford to hold on and ride out the storm.

This sale demonstrates a big loss on a seven-year investment, and that if the 2006 purchase was put on the market during the Great Recession, then there would have been a sizable loss at that time as well.

After starting at $6.5 million in February, this estate-sized lot in Hermosa Beach went “on hold” as the pandemic rocked the stock market and then came back to market with a $301,000 price cut in early April.

After falling out of escrow once, it made a new deal at the end of May and is still currently pending. It was purchased for $5,962,430 in 2018, and depending on the negotiation, this one could sell at a loss.

**Bonus…So, I realized it is not satisfying without an end result to Power Street. Let’s take a look at this closing on Highland Avenue.

  • 1613 Highland Avenue, Manhattan Beach
    • 2 bed, 2 bath, 1,125 sq. ft., 1,351 sq. ft. lot
    • Acquisition Price: $1.560 million in 2016
    • Disposition Price: $1.565 million in July of 2020
      • Gain of $5,000

Most likely purchased as a land-play by a developer, the duplex at 1613 Highland turned out to be a disappointment.

Only selling for $5,000 more than its acquisition price four years ago, this duplex, with two one-bedroom units, likely resulted in negative cash flow the way developers like put debt on their properties.

Its value was also hurt by the new coastal commission laws that would have made it a battle to reduce from two units to one in order to build a new single-family home.

In development, you win some and you lose some.

Unfortunately, this one was another loser when you include cash flow losses over four years. A tricky pandemic marketplace did not do them any favors.

Conclusion

To be clear, these sales are not representative of the entire market. Actually, far from it.

Our local South Bay markets have been strong and surprisingly resilient. The “hot” market considering the circumstances is a more accurate statement when underwriting this market.

However, losses can still occur, and they can happen in a big way if you do not buy your property right.

Make sure you do your research so if uncertainty rears its ugly head again, you can ride out the volatility and avoid losses like these.

Cheers.

DRE: 01779425