Our contributing arithmetician, Zileas, has provided an analysis of Aliso Viejo's market for your study.
- Over the last 9 months, the typical 2 or 3 bedroom condo of 1000-1400 sqft in Aliso Viejo dropped roughly $123 in value per day.I personally think that this number has gotten worse, but I can only prove $123 a day with the data I have.This comes out to about a 1% drop in value per month for the condos I looked at.This is less than half the rate of decrease in Ladera, which you would expect since Aliso is closer to the beach, is more developed, and anecdotally has fewer toxic mortgages and what not.
- For every $1 you overprice your home, you LOSE $0.81 off the final sales price… So if your home is worth $400k, two choices you might consider are (based upon the data): price at $400, sell at $400, or… Price at $425, sell at $380K.This is because buyers tend to ignore overpriced houses in this market (which has so many choices!), and move on to someone who is showing they are willing to sell.Again, sellers: Price to sell!
- If you are going to buy a 2 bedroom condo, you may as well go high on the square feet and get a bigger living room or bedroom or whatever, in my opinion.The cost of buying a condo with a bigger living space (but the same # of beds/baths/basic features) is only $88 per extra square foot in Aliso, which makes those 1400 square foot 2 bedrooms seem a lot more attractive than the 1000 sqft ones…I’d sure pay 35K for 40% more living space!
- Older condos sell for less… About $1700-$2000 less for every year older they are.Note that homes get older as you own them…
- Compared to typical AV properties similar to them, Windflower condos are worth a bit more (about 20k, which is roughly 2%).Other developments may be worth more or less than the average development, but I couldn’t prove it with the data I had.
- I’d really love wider and better data.If any Realtors want to hook me up for my benefit, and for helping you persuade your sellers to price reasonably, look me up!
What Properties Did I Look At?
I used 77 condos sold in the last 9 months in Aliso Viejo, with 2-3 beds, and 1000-1400 square feet.The properties ranged in age from 6 to 18 years old.I performed this analysis on Nov 22nd, on data that is a week old.
How Did I Value Them?
I used statistical regression, which is a fancy way of drawing a line through a bunch of points, but instead of lines which only allow you to study one thing in relation to another, it can study a lot of things in relation to one thing all together.This is the same type of technique that they use in science, pharmaceuticals, and economic models.There are math notes on the specifics for the curious or mathematical inclined at the bottom.
I valued homes using several slightly different methods and selections of properties to make sure my conclusions were robust.The key factors that went into housing value were: when it sold, when it was built, # of square feet, # of bathrooms, # of bedrooms, and how much the seller overpriced/underpriced the property (final asking price – sold price).
How do you Interpret This?
- Use it to look at properties very similar to the condos I used – it would be lousy for looking at a 5 bedroom house in Aliso Viejo, or a condo in Newport Beach.
- It is most accurate right now.This sort of analysis can get stale, things change!
- DON’T use it as investment advice, I’m not a certified professional, just a guy with advanced statistics training, an MBA, and some spare time.
- I have included some valuations of “typical” properties below.A “typical” property has average view, has average upgrades/condition, has average selling circumstances, and so on EXCEPT for the specific details I lay out.You would have to judge if a property would command an “above average” price (e.g. diamond-inlaid bathroom mirror) or a “below average” price (mold growing on walls, neighbor owns meth lab, etc) and adjust accordingly.
2 Bed, 2 Bath, 1000 sqft, built 1990, closing dec 31: $379,000 +/- 25K for relative quality of property.
2 bed, 2.5 Bath, 1400 sqft, built 1996, closing dec 31: $433,000 +/- 20K for relative quality of property
(the +/- are a “95% confidence interval” – if 20 houses sold of each of the above types, I predict only one each would fall outside that range on average)
Where are the Graphs?
Because I am plotting several things vs price, I can’t make a graph.You can graph sqft vs price, but you can’t graph beds AND baths AND year built AND sqft vs price all at once.
How NOT to Interpret this:
- Do not read too much into the $/sqft number.When you see this figure on real estate sites, you are valuing the entire property by it’s square footage.My model considers sqft to be only a part of the overall valuation (instead of 100% of it), so the number you see is smaller.
- You may be tempted to compare this to my Ladera Ranch analysis.They use slightly different methodology and data ranges.Therefore, direct comparison requires some pretty serious knowledge of how these sorts of models work, and even then you are doing a lot of hand-waving.Treat them as stand-alone unless you have deep knowledge of this stuff.
Details of Research for the Curious or Mathematical:
Linear Ordinary Least Squares regression (which is indeed a BLUE regression) of various predictors on soldprice.Boxcox proved linearity with a theta of 7 (!!).VIFs, except where noted, were generally below 2 (beds and yearsagobuilt sometimes crested over it to like 2.35ish).No crazy weighting of data points or questionable pruning, no resampling my own error, no smoking crack, this is a pretty vanilla set of regressions.
All regressions were whitewashed of heteroskedasticity.And yes, there was significant heteroskedasticity because I had no 1 bedrooms and not that many 3 bedrooms in the sample.
This is in the basic “layman’s” posting, and trimming is described in the chart (to either 11 months (all), 9 months, or 6 months).
Predictors and Justifications Behind Using Them:
Daysago -- # of days ago the property was built, captures gradual constant pricing decreases which we know exist!
Daysagosquared – Same as above, but captures accelerating trends to a degree.
Beds – More bedrooms usually means more value, and it has regressed well in other housing studies.
Baths – Same logic as above.
Sqft – Larger houses sell for more, duh.
Yearsagobuilt – Newer homes sell for more – inherently they look better, have higher tech construction, less deferred maintenance problems, etc.
Overprice – In a buyers market, overpricing means you get less offers, which should reduce the price you get for the property… Asking too much means you artificially decrease demand away from yoru actual “willing to sell” point.
Fixed Effects – some communities are gated or have great views or better layouts or have a slightly better location or were more upgraded at initial construction by the builder.It is hard to know the specifics, but a general fixed effects model can capture some of these unobservable differences.I put condos that had 7 or more sales in the same development into a group, and all others into the omitted category.35 out of 99 condos were in this omitted category.
Regression 1, 99 condos:In this regression, I noticed that the regression was mediocre (borderline p-values on good predictors, though same signs and all that) unless I added in daysagosquared, which crudely captured an accelerating pricing trend with time.With it, the predictor coefficients became VERY good (daysago t-stat went from 1.98 to 4.48 for example).
Unfortunately, this regression was also highly multi-collinear between daysago and daysagosquared, though they tested for P<.01% for joint significance.Nonetheless, we don’t really care what houses went for in feb and march that much, so I decided to trim the data to get around having to use daysagosquared in future regressions.
Regression 2, 99 condos: This is pretty much the same regression, but I added in fixed effects as a robustness check and also to fish and see if any developments were obviously better or worse.Not useful for answering the question we all want answered, which is, what are houses worth today, but interesting nonetheless!It seems that windflower is worth 19k more (p <.1%).Nothing else could pass the null hypothesis, so I decided that, especially since I’m cutting data which would further strain it, I may as well dump fixed effects for this regression.Alas.
Regresion 3, 77 condos (Suggested):This is the regression I’m basing the majority of my conclusions on, and I think it is the best one in terms of predicting what you’d pay RIGHT NOW.The one variable that had weaker significance, baths, is one that we know does in fact have real-world significance, so I felt comfortable leaving it in with p=10.2%.Besides, the purpose of this analysis is to track price decrease more than anything, so its not doing much harm sitting in there adding a little bit of predictive power.
Regression 4, 37 condos:I trimmed the data to the last 6 months in this regression.My model started to get unstable from lack of data at this point.Among other things, beds and baths went deep into insignificance, and their predictive power appears to have gotten sucked up by other variables, especially sqft (the strongest predictor).It’s hard to make a good comparison of this to regression 3, though the general trends predicted in 3 are also predicted here.
Regression 5, 77 condos:this is for those of you who are skeptical about the overprice variable for a variety of reasons. I encourage you to think those through carefully and consider what it would mean for the variable to have different strengths, but I included this in case you consider it invalid.The regression is reasonably useful without the variable, you just drop R^2 a lot, and reach the same conclusions on the price trend.
I received an email from a reader providing more information on this listing:
Here is the deal on this property: Mr. Windfall Profits purchased the property for $330,000 direct from Shea Homes in Jun-2003. Just 14 months later, Ms. Greater Fool purchased the property for $500,000 in Aug-2004. Ms. G.F. encumbered the property with $475,000 in debt at the time of acquisition. Ms. G.F. apparently needed some money (new Mercedes lease? tropical vacation?), so she refinanced in Aug-2006--a $480,000 first and a $128,000 second, for a total of $608,000 in debt.
When Ms. G.F. refinanced, her original loan would have been paid off, enriching her with a whopping $133,000 in cash.
Ms. Greater Fool sold the property in Jul-2007--but unfortunately for the lender this was not sold by a grant deed, it was sold by trustee's deed! Deutsche Bank Trust Co America is the recorded owner at a price of $505,138. It's on Redfin for $469,900. With a full price offer and 6% in sales commissions, the total lender loss from the Aug-2006 refi will be $166,294 or 27%!
It is Black Friday today...I wonder what Ms. Greater Fool is doing with all that cash?
I am wondering the same thing. If I had just walked away with that much of the banks money, I would be very thankful...
I close my eyes, only for a moment, and the moment's gone All my dreams, pass before my eyes, a curiosity Dust in the wind, all they are is dust in the wind. Same old song, just a drop of water in an endless sea All we do, crumbles to the ground, though we refuse to see
Dust in the wind, all we are is dust in the wind
[Now] Don't hang on, nothing lasts forever but the earth and sky It slips away, and all your money won't another minute buy.
Dust in the wind, all we are is dust in the wind Dust in the wind, everything is dust in the wind.
The recent fires have reminded me of the helplessness of man to confront forces larger than himself. Many homeowners are hoping the FED or somebody can save the housing market. The forces in play are much larger than anyone can control. We are all powerless to change our real estate market, including the FED. All we can do at this blog is keep people informed of its progress, and hopefully keep of few readers from watching their hard-earned money consumed by the market or dissipate into the ethers.
Beds: 2 Baths: 2 Sq. Ft.: 1,200 $/Sq. Ft.: $417 Lot Size: - Type: Condominium Style: Townhouse Year Built: 2003 Stories: Three or More Levels Area: Quail Hill County: Orange MLS#: P606334 Status: Active On Redfin: 1 day New Listing (24 hours)
From Redfin, "END UNIT TOWNHOME W/ DIRECT GARAGE ACCESS IN 'QUAIL HILL' PRICED FOR IMMEDIATE SALE. FORMAL LIVING RM W/ FIREPLACE, UPGRADED DISTRESSED HARDWOOD FLOORS, GRANITE KITCHEN COUNTERS, BALCONY, PEDESTAL SINK IN GUEST BATH, INSIDE LAUNDRY AREA, NICE SIZE BEDROOMS. SUPER MOTIVATED SELLER WILL MAKE EVERY EFFORT TO WORK WITH YOUR QUALIFIED BUYERS. SUBMIT!!!"
CAPS LOCK, AGAIN.
SUBMIT!!! Sounds like a line from a bad bondage video...
Check out the sales history:
Sales History Date Price 07/24/2007 $505,138 08/26/2004 $500,000
This is actually a 2004 rollback and the second REO we have seen prices below $500,000 in Quail Hill. The first might be written off as an anomaly, the second is an ominous sign. At what point does this become identified as a trend?
Just in case you forgot why we are seeing all these REOs.
Beds: 3 Baths: 3 Sq. Ft.: 2,146 $/Sq. Ft.: $315 Lot Size: - Type: Condominium Style: Mediterranean Year Built: 2004 Stories: Two Levels Area: Northwood County: Orange MLS#: S490583 Status: Active On Redfin: 172 days Unsold in 90+ days
From Redfin, "Move in condition, highly upgraded spacious home. This gorgeous home offers 3 bedrooms and a huge bonus room. There are two master bedrooms, one down plus additional bedroom and another master upstairs with a huge bonus room and builtin computer area. Upgraded hardwood flooring and carpeting, plus plantation shutters. Formal dining room, spacious kitchen upgraded with granite counters and wood cabinetry and stainless steel appliances."
That is a well written listing. You don't see those very often...
Price Reduced: 08/07/07 -- $818,000 to $780,000 Price Reduced: 09/06/07 -- $780,000 to $760,000 Price Reduced: 10/13/07 -- $760,000 to $730,000 Price Reduced: 10/26/07 -- $730,000 to $699,000 Price Reduced: 11/02/07 -- $699,000 to $675,000
The asking prices started somewhere in Wonderland on the exact day the credit crunch took hold. From there, the seller has slowly and methodically chased the market down, always staying one step behind the drops necessary to make a sale.
George Winston's version of Carol of the Bells has been a favorite of mine for years. The somber tone captures the bleak beauty of December. The degree of difficulty to play this must be very high. You can hear each of his hands are playing something completely different and very complex. Beyond that, it is just beautiful. I hope you enjoy it.
First Mortgage $450,000 Second Mortgage $60,000 Total Debt $510,000 Downpayment $60,000
Beds: 3 Baths: 2.5 Sq. Ft.: 1,500 $/Sq. Ft.: $367 Lot Size: 1 sq. ft. Type: Condominium Style: Contemporary, Spanish Year Built: 2001 Stories: Two Levels Area: West Irvine County: Orange MLS#: S495371 Status: Active On Redfin: 135 days Unsold in 90+ days
From Redfin, “Stunning 3 bedroom, 2.5 bath luxury townhome with attached 2-car garage. Marble-look Italian porcelain tile floors, recessed lighting through-out, custom beech-wood cabinetry and durable Corian counter tops in kitchen. Romantic raised fireplace in living room, fire and security alarm, custom-finished floor in garage, slate hardscape in front and much more! ”
This is the first owner we have seen in a while that actually put money into the property. Of course, they are about to lose all of it, but the lender will not get hurt on this one. If this property sells for asking price — which doesn’t seem very likely after 135 days on the market — and assuming a 6% commission, the seller will lose $53,094. I guess with $6,906 in equity left over, they can afford to pay a mover to take them to their rental…
Finding songs to relate to the real estate market has been a source of great fun and a unique creative outlet for me. However, there are many great songs that do not relate to the collapse of the housing market. Since we are entering the holiday season, and since the real estate bulls are thoroughly defeated, I will take a break from our normal routine and feature holiday music now through the end of the year. To start, I want to feature one of my favorite artists: George Winston. His album, December, begins with a song called Thanksgiving and follows with a series of Christmas Carols set to piano as only George Winston can. Enjoy.
From Turtle Ridge, the land of WTF listing prices and decadent kool-aid parties, we have a 2004 rollback. This can't be making the neighbors too happy.
First Mortgage $580,950 HELOC $33,000 Total Debt $613,950
Beds: 2 Baths: 2.5 Sq. Ft.: 1,155 $/Sq. Ft.: $498 Lot Size: - Type: Condominium Style: Mediterranean Year Built: 2003 Stories: Three or More Levels View(s): City Lights, Hills Area: Turtle Ridge County: Orange MLS#: U7003293 Status: Active On Redfin: 105 days Unsold in 90+ days
From Redfin, "Best Buy in the Community!!! Exquisite former Sutton Model in Turtle Ridge's Ashton Green featuring 2 bedrooms & 2.5 baths. Light & birght end unit in the best location with open hill views. Upgraded kitchen with custom distressed cabinetry and upgraded appliances to match, designer counters & back splash. Bathrooms are all upgraded with the custom cabinetry & designer wall paper. The master bathroom has beautiful custom stone on the counters & in the shower. So many more upgrades to list."
The obligatory three exclamation points.
designer wall paper? Is there another kind?
Date Price 05/27/2005 $599,000 04/26/2005 $606,000 04/08/2005 $722,500 03/30/2005 $620,000 03/28/2005 $627,500 03/22/2005 $618,500 03/21/2005 $615,500 03/11/2005 $611,000 12/28/2004 $572,000 12/22/2004 $640,000 12/21/2004 $615,000 12/17/2004 $581,000 12/15/2004 $583,000 It is difficult to tell from the sale history (it reads like an appraisal history,) but the property records show this house was purchased in late 2004 for more than the current asking price. If they get this price and pay a 6% commission, the lender stands to lose $74,390.
The lender won't be having a happy Thanksgiving, but I hope you will.
Everyone sitting around talking about their homes. Sounds like every western port, doesn't it? Certainly the ones in California.
Today's property isn't a rollback yet, but it still has an interesting story to tell. The property is located in the land of kool aid and real estate zealots: Turtle Ridge. The property has been on the market just short of forever, but the seller still refuses to lower the price. Why is that? Does it have something to do with the amount of debt on the property?
First Mortgage $1,500,000 HELOC $200,000 Total Debt $1,700,000
Beds: 4 Baths: 3.5 Sq. Ft.: 3,046 $/Sq. Ft.: $535 Lot Size: - Type: Single Family Residence Style: Mediterranean Year Built: 2004 Stories: Two Levels View(s): Hills Area: Turtle Ridge County: Orange MLS#: U7000774 Status: Active On Redfin: 270 days Unsold in 90+ days
From Redfin, "Ideal End of Cul-de-Sac Location. Taylor Woodrow Bontanica Plan 2 with Casita Garden Suite + Highly upgraded with Crown Moldings, Custom Built-ins. Private Courtyard. Rear yard with Grass, and Patio area with Built-in Grill. Desirable Guard Gated 'Summit Park'. Owner will consider Trade for Smaller Home in the Area. "
What do you make of the trade-down idea?
I don't know how much of the $200,000 HELOC has been borrowed and spent, but I think we can make an educated guess. When an asking price doesn't drop after 9 months on the market, there must be a reason (other than foolish stubbornness.) If the seller gets her asking price and pays a 6% commission, she will be left with $1,531,260. The first mortgage is listed as conventional, so we can assume very little of the $1,500,000 has been paid down since August of 2006 when it was initiated (the first mortgage is a refi.) Therefore, if our seller has borrowed more than $35,000 on the $200,000 HELOC, she is looking at a short sale.
Quite honestly, I doubt she cares. This was a 100% financing deal from the outset, and she has already pulled over $67,000 out with the refinance on the first mortgage. Any of the HELOC she walks away with is a bonus. The bank will get to eat the rest.
Anybody want to estimate how much the bank will lose on this one?
It's the edge of the world And all of western civilization The sun may rise in the East At least it settles in the final location It's understood that Hollywood sells Californication
Destruction leads to a very rough road But it also breeds creation And earthquakes are to a girl's guitar They're just another good vibration And tidal waves couldn't save the world From Californication
California is one of America's cultural centers -- for better or worse. Now that we have had our first nationwide housing bubble, it will be interesting to see if California exports one of its most pernicious beliefs: perpetual house price appreciation.
In the 1970s California experienced extreme price appreciation coinciding with the rampant inflation of the times. Like any financial bubble, many people made large fortunes, and many bagholders got burned. Once Californians realized they could drive up house prices and make large fortunes, the stage was set for repetition of the cycle.
This may be the most important point I have made on this blog:
House prices in California go up because Californians believe house prices go up.
Think about that for a moment. This simple fact eludes most people, and if there is anything I would like the readers of this blog to really understand it is how this works.
When people believe house prices will rise, it makes them want to buy. When they buy, they drive up house prices. Rising house prices convinces others that house prices will rise further. This causes even more buying. The cycle of rising and falling house prices in California is a completely psychological phenomenon.
It started in the 1970s, it was repeated again in the late 1980s, and it has been repeated again in the early 2000s. There is nothing magical about California real estate that makes it a better investment than real estate in other places. All California has is a pathological belief in appreciation that creates a high degree of volatility in the housing market. In my opinion, Houses Should Not Be a Commodity.
This uniquely Californian cultural pathology has been unleashed on the rest of the country. It will be interesting to see where else it takes hold.
Beds: 2 Baths: 2.5 Sq. Ft.: 1,824 $/Sq. Ft.: $381 Lot Size: - Type: Condominium Style: Other Year Built: 2005 Stories: Two Levels View(s): Mountain, Park or Green Belt Area: Woodbury County: Orange MLS#: S512634 Status: Active On Redfin: 4 days
From Redfin, "This home has it all; GREAT PRICE! BEST LOCATION! HIGHLY UPGRADED! OPEN FLOORPLAN! This home features gorgeous custom 'old board' wood flooring & berber carpeting. Gourmet kitchen w/ beautiful walnut cabinetry, ceasar stone counters & stainless steel appliances. Master suite offers walk-in closet, dual vanities w/ marble & Juliet's balcony. Private courtyard entry opens to a separate den/office (which can be converted to a 3rd bedrm). Uppper level private deck w/ 'picture perfect' views & MORE. .."
This home has all the UPPERCASE LETTERS AND EXCLAMATION POINTS YOU COULD EVER WANT!!!!!!!!!!
What is a 'picture perfect' view in Woodbury? Let me guess, your balcony looks directly into your neighbors bedroom, but at least the neighbor is hot.
And, of course, another gourmet kitchen...
Ordinarily I would tell you about how much this seller would lose if they get their asking price ($85,200), but this seller is not going to get their asking price because of the REO in the neighborhood...
Beds: 2 Baths: 2.5 Sq. Ft.: 1,850 $/Sq. Ft.: $346 Lot Size: - Type: Condominium Style: Other Year Built: 2006 Stories: Two Levels Area: Woodbury County: Orange MLS#: S513083 Status: Active On Redfin: 1 day New Listing (24 hours)
From Redfin, "Location, Location, Location! Fabulous Woodbury condo! Spacious kitchen with breakfast bar that opens to living room. Perfect for entertaining!!Gourgous tiled floors throughout. Master bedroom has it's own bath with dual sinks. Nice patio in front. Close to everything and resort style amenities that include pool, spa, and more! "
Gourgous? Is that like couscous?
I think the kool aid man must have visited JP Morgan's REO department if they think they can sell this place for 25% more than they paid at auction.
It appears to me that our featured property seller is screwed. They are being undercut by this REO by $60,000, and based on the auction price of the REO, there doesn't appear to be any market for these units at all. JP Morgan went to the auction and bought this unit for $491,396. There were no professional flippers out there who would even bid $500,000 and try to flip it for $575,000? If the pros don't think this could sell for over $600,000, how is our featured seller going to get $695,000? No, I am afraid our featured seller is going to lose more than $85,000... a lot more...