April 13, 2007
Lazing On A Sunday Afternoon
(c) View From Silicon Valley, 2007. All rights reserved.
We went biking on Easter Sunday afternoon so it wasn't exactly
"lazing" on a Sunday afternoon, That's one of the consolations for living in the land of $750K median houses.
On a weekend in early April you can go out biking in shorts and short sleeves. The sun was shining, the breeze
was light and the temperature was in the 70's...
In the small neighborhood we visited near our house, we counted
eight different houses in varying stages of being rebuilt. Biking at the speed of a young child. we made this count in
the space of maybe 30 minutes.
There was a wide range of project sizes. We saw obviously-professional
projects with chain link fences, piles of construction gear and the always-essential porta-potty. We also saw a small
house with the stucco being refinished and the nominal "wife" of a couple mowing the grass (OK, she was really just mowing
their weeds) while the husband drove off on what seemed likely to be an errand to Home Depot.
All of these projects looked fairly advanced. Despite
a lack of direct experience in the flipping business, it seemed likely each of the projects could finish up and
be ready for sale within a few months. A couple places even looked complete except for landscaping and porch
lights.
We also looked in on two open houses on Easter Sunday.
(Our experience is real estate agents discourage sellers from having open houses on holidays not because nobody is looking,
but because they want to go off and do something else.)
The first one had a bunch of realtor signs sprinkled around for
blocks, listed at $1.257M for ~1,500 square feet. Given we recently published a piece about a $1.25M
place going from listing to "sale pending" in just a few days (http://www.viewfromsiliconvalley.com/id312.html), it was intriguing to see this one listed as "price reduced."
Holy cow! Is this it? Have we finally seen the "top"??
A price people won't pay for a 50-year-old shack???
At first look, this house lowered even our cynical
expectations about what you get for $1.25M. The place was not painted, the kitchen and bathroom looked to be "original."
Instead of TV cables and coax outlets, we saw antenna wires. Yes, actual old-time TV antenna wires. The owners
even left behind a window air conditioner sitting in the living room.
Once our observations extended to noticing the windows were
dirty and nothing was painted, it became apparent this house was really intended to become a tear-down. The eight flipper
projects would probably become nine shortly after this place sells.
Unfortunately, the "problem" with this house was not
that people will no longer pay such a ridiculous price for a small, non-descript house. It's just that "over-paying"
for this tear-down would cut into the flipper's margin after tearing it down.
The second open house quickly disabused us of even this consolation.
The original house on this lot sat empty for several months and then seemed to disappear over-night. The lot went
from bare to a finished house in maybe a little over a year.
As an aside, the timing itself even seems like news. After
all, down the street from this lot, another neighbor of ours has a contractor converting of their garage
to living space. This neighbor has had a huge "PODS" storage unit sitting in front of their house for at least
18 months and counting.
The second open house was open for the very first time
that afternoon. We assumed the "sale pending" sign sitting next to the front door was the realtor being aggressive.
Given that the house was 4,000 square feet and $3.194M, it seemed very unlikely this house would sell any time soon.
The inside was clearly staged. The usual granite counter-tops
and stainless appliances were installed. The master bedroom had a fireplace, wet bar and fridge but the master
closet was kind of small for a house this size and completely bare.
The realtor quickly introduced herself and explained the house
was already sold. "So you're still showing it in case you need back-up offers?" "No, we had the open house scheduled
and just decided to go forward even though it's already sold."
Conclusion:
Despite radio reports featuring realtors insisting they are
"optimistic" their business will soon "recover," there is still no sign of price or demand weakness in our neighborhood.
Yet almost every house that sells seems to be bought by somebody who plans to sell it to somebody else --after
a big mark-up, of course.
At some point, there has to be a "limit" --don't you think?
