The East Hermosa Beach new construction market has been pretty wild over the last two years.
Hermosa Beach is a relatively small South Bay city with fewer sales than most neighboring cities, but even with less sales data, it has been a consistent real estate market over the past few years. Check out the year-over-year median price growth over the past three years:
- 6.27% up
- 5.74% up
- 3.49% up
When I zero in specifically on the East Hermosa Beach sub-market and the new construction activity, it surprises me with what’s going on. As a result, I will be focusing on East Hermosa Beach’s new construction activity to shed some light on what’s happening. Let’s check out some past new construction sales…
2017: The Year of New Construction Single-Family Homes
In 2017, activity for new construction single-family homes was moving at a solid pace. Below are examples of typical sales of new single-family homes during this period:
- 535 Hollowell Avenue
- 5 bed, 4 bath, 3,425 sq. ft., 3,994 sq. ft. lot
- Sold for $2.25 million
This sale on Hollowell represents the standard/median new construction home sale one would see for the year.
- 1124 8th Street
- 5 bed, 4 bath, 3,117 sq. ft., 3,541 sq. ft. lot
- Sold for $2.1 million
- 1154 6th Street
- 4 bed, 5 bath, 3,300 sq. ft., 4,003 sq. ft. lot
- Sold for $2.449 million
Homes similar to the sales of 8th Street and 6th Street above set the tone for the expected price of these new construction sales, to range somewhere between $2,100,000 to $2,449,000.
I did, however, withhold a major outlier in 2017. That outlier was a new home that sold for $3,440,000, blowing all other sales away by at least 40%. This sale occurred at 18th Street and was a major “wow” price relative to the product and area. Take a look:
- 826 18th Street
- 5 bed, 5 bath, 4,100 sq. ft., 5,500 sq. ft. lot
- Sold for $3.44 million
Switching gears to new construction town homes, surprisingly, there was only one sale in all of 2017. It, too, sold at the end of the year for a “wow” price. Check out this town home:
- 515 Prospect Avenue
- 5 bed, 4 bath, 3,950 sq. ft.
- Sold for $2.835 million
Now this town home did have fabulous views, but normally, single-family homes are considered more desirable than town homes. This lone town home sale outsold all of the other single family new construction sales by at least $300k and many by much more. Perhaps the sale was influenced by the end of the year $3.44 million sale and little new home inventory?
Regardless, these two huge end of the 2017 year sales were big market movers.
2018: The Year of New Construction Town Homes
Here is where the “wild” part comes in…
With six new construction single family home sales in 2016 and seven new construction single family home sales in 2017, the new construction single family home market essentially dried up. There was only ONE East Hermosa new home sale in 2018.
That solo sale was a very conservative and under-built home for the lot size.
- 1218 6th Street
- 4 bed, 4 bath, 2,440 sq.ft., 4,003 sq. ft. lot
- Sold for $2.3 million
New construction town homes filled this void in the market left by a lack of single family homes. And the town homes filled it in a big way. There were six new construction town home sales in 2018 (compared to only one in 2017). Those sales also happened to far outpace the prices of the single-family sales of the previous year.
The prices ranged from $2,450,000 to $2,799,000 as demonstrated by the following properties:
- 1022 7th Street
- 5 bed, 6 bath, 3,300 sq. ft.
- Sold for $2.45 million
- 1619 Golden Avenue
- 4 bed, 5 bath, 3,355 sq. ft.
- Sold for $2.799 million
That is a huge jump from the 2017 price range of $2,100,000 to $2,499,000 when ruling out the huge outlier sale.
Some additional examples of typical 2018 new construction town homes closings:
- 1720 Prospect Avenue sold for $2,515,000
- 4 bed, 4 bath, 3,750 sq. ft.
- 517 Prospect Avenue sold for $2,542,813
- 5 bed, 4 bath, 3,725 sq. ft.
- 1621 Golden Avenue sold for $2,790,000
- 4 bed, 5 bath, 3,452 sq. ft.
As I stated before, single-family homes are usually much more desirable than town homes, so this data of town homes outselling single-family homes really surprised me.
Essentially, the East Hermosa new construction market had been flipped on its head. Prices in 2018 surged much higher even with the “less desirable” product type of a town home.
What is the reasoning for the crazy march higher in new construction town home prices?
Some potential theories:
- The massive end of the year sales in 2017 (the $2,835,000 town home and $3,440,000 single family sales) actually reflected the true market.
- The 2018 new single-family home market basically ceased to exist, so the lack of inventory forced buyers to sacrifice and pay-up big time.
- Buyers may have over-paid at the end of 2017 and early 2018, which in turn, created a lot of “high comps” to justify much higher prices in 2018. This data may have pressured buyers into higher prices and riskier assets like the town homes sales we saw in 2018.
For now, there are no clear answers because we do not have any new construction single-family home sales to help analyze the above data.
If 2019 can provide multiple new construction town home sales AND multiple new construction single-family homes sales, we can determine if this surge higher in prices is here to stay in both assets, or, if it was a short-term run that might deserve a pull back in prices.